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Broker spotlight: Marks & Spencer, Whitbread, BG, Bunzl, Rio Tinto ...

Last updated: 13:11 16 Oct 2014 BST, First published: 12:11 16 Oct 2014 BST

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Marks & Spencer (LON:MKS) has been under the radar lately with the problems at Tesco and other supermarkets, but Morgan Stanley reckons it now worth another look.

The food and clothing retailer sees M&S as both under-earning and lowly rated, so there is scope both for earnings upgrades and a re-rating if investors gain confidence that execution is improving. 

Sales may look weak, but MS believes progress on margins is being made, even though the broker believes operating margins in general merchandise should be should be at least 1,000 basis points higher.

“M&S is very much a ‘show me’ story, but investors focused on the top line risk looking in the wrong  place.

“We think the big opportunity is in General Merchandise gross margin, and progress there is not dependent on driving sales growth. 

“Those focusing on weather, the online problems, or market share data risk missing this story.” The price target is 490p and rating “overweight”.

Whitbread (LON:WTB) investors can take encouragement from the recently published UK hotels outlook document by PwC, says Numis.

They forecast 5% RevPAR growth in calendar 2015 in London, with the Rugby World Cup expected to have a positive demand impact, whiel provincial hotels are benefiting from an improving economy.

The broker expects Whitbread to have another good year as its strong brands continue to win market share and its ambitious organic network expansion gains momentum. Add, from hold, is the new recommendation.

UBS has joined the list of brokers applauding BG’s (LON:BG.) new chief executive Helge Lund, even though he does not start until next March.

“Having managed a similar sized international E&P with significant exposure to European and US gas  markets and operations globally (including Brazil and Australia) Lund could barely be  better qualified. “

The top team at BG now looks very strong indeed, adds the broker, which has a buy rating and 1,385p target.

UBS has also upgraded copper miner Antofagasta (LON:ANTO) to 'neutral' from 'sell' after its 20% underperformance recently, 

“The stock should trade at a small premium to sector as it is a low-cost pure-play copper producer with a strong balance sheet and conservative management.”

Jefferies has raised its rating on computer design engineer Aveva to ‘buy’ from ‘hold’ with a price target of 1,760p.

The share price reaction since the profit warning on 12 September has been severe, the stock declining some 40%, well beyond the earnings downgrades of nearer 18%. Visibility is much reduced but the risks are skewed to the upside. ‘Buy’.

Investec rates Bunzl (LON:BNZL) as a buy as strong business, well positioned to capitalise on further growth opportunities.

Target price remains at 1685p, but the recommendation moves to buy from add after the recent dip in the shares.

Rio Tinto's (LON:RIO) tonnes grew three percent this quarter over the preceding quarter. Pilbara production was above nameplate (290Mtpa) and guidance will likely be exceeded with the ramp-up of the Nammuldi mine in the final quarter.

Rio's share price today is discounting flat US$65 iron ore. At spot prices, Rio would generate one and half billion in free cash flow next year before any lift in the dividend and three billion in the year after. Buy on valuation says Deutsche Bank.

Broker Panmure Gordon said investment software specialist Statpro's (LON:SOG) trading update was reassuring and noted that key performance indicators (KPIs) in the normally quiet third quarter suggest that the Cloud transition strategy is developing as expected.

According to Panmure Gordon, the application of conservative multiples to the different revenue lines suggests a sum-of-the-parts valuation for the shares north of 100p.


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