UK MARKET TALK ROUNDUP: BROKERS COMMENTS

28th Jul 2010 10:38

Broker comments in the UK today. Compiled by Dow Jones Newswires Markets Desk, [email protected] Contact us in London. +44-20-7842-9464 [email protected] 0938 GMT [Dow Jones] Royal Bank of Scotland downgrades Barratt Developments (BDEV.LN) to hold from buy and cuts target price to 110p from 162p. Says while higher land investment intensity will be validated if trading stability holds, it adds an extra layer of volatility in the event of macro weakness. Brokerage also downgrades Persimmon (PSN.LN) to hold from buy and cuts target price to 380p from 580p. Says 1H'10 trends have reinforced RBS's view that Persimmon may outperform consensus on pretax profit, net debt and NAV progression in FY'10. However, notes concerns over trading stability thereafter "and with our price target now weighted to a bear-case possibility, we downgrade to hold." RBS cuts Bovis Homes (BVS.LN) target price to 340p from 449p, Redrow (RDW.LN) target to 100p from 140p and Bellway (BWY.LN) to 640p from 870p, keeping at hold. Cuts Berkeley Group (BKG.LN) target to 955p from 1000p, Galliford Try (GFRD.LN) to 450p from 457p and Taylor Wimpey (TW.LN) target to 36p from 52p, keeping all at buy. ([email protected]) 0927 GMT [Dow Jones] BP'S (BP) management should be thinking of more radical changes to the company's structure than those announced Tuesday in order to return value to shareholders, says JPMorgan analyst Fred Lucas. BP's share price weakness following its 2Q results Tuesday may have been due to "disappointment that BP's thinking on a 'new and different BP' may simply mean a BP with a smaller upstream portfolio," he says. Gives overweight rating, 417p target. Shares -0.8% at 403p. ([email protected]) 0921 GMT [Dow Jones] Piper Jaffray downgrades ARM Holdings (ARM.LN) to neutral from overweight but raises target to 318p from 310p. "Although we believe ARM is one of the most solid stories in the semiconductor sector, we downgrade our recommendation to neutral on valuation grounds, with the shares trading at approximately 30x 2011 PE," says brokerage. It believes investors should look for a better entry point. "The scope of future earnings upgrades is now more limited. And the recent increase in the British pound versus the US dollar may play against the company," adds brokerage. Shares +0.4% at 335p. ([email protected]) 0754 GMT [Dow Jones] Tullow Oil (TLW.LN) encounters more than 40 meters of net oil bearing reservoir at its Ngiri-2 appraisal well in Uganda, "the largest net pay to date in the Butiaba region," says Evolution Securities. "We believe [Wednesday's] result is likely to add in the order of 5p-10p to our Core + Risked NAV." Evolution sees the announcement as the third good bit of news from the company in three days, with market sentiment turning back in favor of the stock. Has a buy recommendation and 1450p target. Shares +1.9% at 1297p. ([email protected]) 0752 GMT [Dow Jones] Exane BNP Paribas downgrades Cairn Energy (CNE.LN) and Dana Petroleum (DNX.LN) to neutral from overweight. Notes Dana shares have surged 71% since the brokerage upgraded the stock in February, and reckons the risk/reward is more balanced after Korea National Oil Corp raised its offer for the company. As far as Cairn is concerned, Exane says the exploration outlook remains promising, but notes the stock has outperfomed by 30% since initiation and reckons the Greenland risk/reward is fairly priced in. Has 1650p price target on Dana, and 450p target on Cairn. Dana shares flat at 1707p and Cairn shares +0.2% at 472p. ([email protected]) 0737 GMT [Dow Jones] Royal Bank of Scotland downgrades Pearson (PSON.LN) to sell from hold given share price strength, but raises target to 915p from 865p. Says while Pearson's recent 1H results were very good and demonstrate the company is currently in a sweet spot, headwinds are likely to gather in '11. Notes a third of Pearson's revenue is paid directly by the government, where austerity will likely become a growing problem. Also says Pearson faces around 2p/share of earnings dilution in '11 from net disposals. Shares -0.7% at 1015p. ([email protected]) 0732 GMT [Dow Jones] HSBC downgrades International Power (IPR.LN) to neutral from overweight. Continues to see a tie-up with GDF Suez (GSZ.FR) as offering compelling financial and operational logic for International power. However, sees potential for disappointment over the extent of the special dividend payable to International Power shareholders. Has a 370p target. Shares -0.5% at 368p. ([email protected]) 0719 GMT [Dow Jones] Compass Group's (CPG.LN) strong organic sales growth at the 3Q stage is likely to be sustained, suggesting a 5%-to-7% revenue growth rate in the medium term, says Shore Capital analyst Greg Johnson. However, a weaker-than-expected margin projection may disappoint the market, Johnson says. Buy rating. Shares +1.7% at 567p. ([email protected]) 0719 GMT [Dow Jones] Oriel Securities downgrades Barclays (BCS) to hold from add, and HSBC Holdings (HBC) to add from buy, but maintains target prices. Says Barclays Capital should see revenue cut of 20% in 2Q versus 1Q, while bank now trades 8% above 312p target price. HSBC trading 10% below 730p target, but shares approaching fair value. Adds retail market continued to be challenging in 2Q based on U.S. bank results. HSBC +0.3% at 668p, while Barclays +2.5% at 348p. ([email protected]) 0707 GMT [Dow Jones] BG Group's (BG.LN) performance in its liquefied natural gas unit was surprisingly good in the second quarter, says Panmure Gordon analyst Peter Hitchens. At $540 million, LNG profits were well above analysts' estimates, which is surprising because BG has previously been indicating that 2010 LNG profits would be lower, he says. The company benefited again from diverting cargoes to the highest value markets, he adds. Has a buy rating, 1500p target. Shares -0.1% at 1062p. ([email protected]) Contact us in London. [email protected] 0700 GMT [Dow Jones] Brit Insurance (BRE.LN) announces a strong set of 1H results, says a trader, as well as announcing it has allowed Apollo to conduct due diligence on its books having submitted a revised indicative offer of 1075p/share. Says pretax profit of GBP72.8M is ahead of consensus estimates of GBP45.4M. Adds investment income was also ahead of expectations at GBP57.5M versus GBP46.7M. Additionally, Brit continued to show credible underwriting discipline with premiums down 13.4% on 2009, says trader. "The results are strong and should provide considerable reassurance to Apollo, and we expect the bid to be formalized," he adds. Brit shares closed at 913p. ([email protected]) 0658 GMT [Dow Jones] Yell's (YELL.LN) 1Q results are in line with expectations, says Numis Securities. Notes normalized pretax profit of GBP47M versus Numis's estimate of GBP43M and consensus of GBP42M. But the brokerage continues to see material cyclical, structural, financial and managerial challenges facing the group. "We believe new management is likely to increase investment, particularly online, and see a strong likelihood of a further equity raise." As such, Numis downgrades the stock to reduce from hold. Keeps 25p price target. Shares closed Tuesday at 30p. ([email protected]) Contact us in London. +44-20-7842-9288 [email protected] (END) Dow Jones Newswires July 28, 2010 05:38 ET (09:38 GMT)