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Broker Spotlight brings some of the more intriguing and topical analyst coverage to centre-stage. The daily column aims to illuminate thoughts and opinions behind the big stories. London is one of the financial capitals of world. The influential and closely followed views of its analysts regularly move markets and split opinion. The Broker Spotlight column arms Proactive readers with the added insight from the often colourful thoughts and headline-grabbing valuations from the City’s analyst community.
Broker Roundup Part 1 including Next, Afren and Rolls Royce, Serica Energy
January 04 2012, 11:29amBroker Seymour Pierce rates retailer Next (LON:NXT) a 'buy' and targets a price of 3100 pence for the stock (current price: 2660 pence).
The firm released a trading update today for the period August 1 to December 24 last year, which Seymour Pierce said, was "broadly in line with expectations".
The company posted a 3.1 per cent rise in sales for the period. Within that, the store chain recorded a 2.7 per cent fall, with the Next Directory catalogue business picking up the slack with a 16.9 per cent rise increase in revenues.
Following this update, the broker said it was retaining its FY12 pre-tax profit at £565 million and said Next was the fourth best performing FTSE100 company last year, so it was likely there would be some profit taking in the stock.
"We recommend investors buy on weakness and we retain our price target of 3,100p," it said.
Merchant Securities, meanwhile, rates the stock a 'hold' and added that although the company has a cautious outlook for 2012/13, it believes that the strength of the double digit growth from Directory should enable the group to increase market share, while offering a multi-channel business model.
Elsewhere, Africa-focused oil and gas group Afren (LON:AFR) received more broker coverage a day after announcing it exceeded its 2011 year-end production target by 11 percent to 55.400 barrels of oil equivalent per day.
Collins Stewart and UBS both reiterated their ‘buy’ recommendations, and they both have a 135 pence price target on the stock.
Production at the Ebok field, located offshore south east Nigeria, has been increased to a stabilised rate of around 40,000 barrels of oil per day, following the commissioning and ramp-up of all production wells associated with the initial phases of the Ebok development, Afren reported.
Collins Stewart said the strong share price move on the day reflected the fact that the news was a significant milestone for the company, however, it might expect the stock to now pause for breath.
The broker noted that the pace of ramp-up from Ebok was the key variable impacting Afren’s production and cash-flow during 2011.
“Incorporating risked exploration we see 34 percent upside to our Full net asset value of 138 pence a share, still at the top end of the range for the large cap E&Ps. We adjust our forecasts to take account of the back-end loaded production build-up at Ebok but make no changes to our Buy rating or our 135p/sh target,” the broker said.
Meanwhile, UBS has set its price target at a 30 percent discount to the 189 pence risked NAV, in line with the historic average, and said Afren is trading on a 47 percent discount to NAV versus the sector trading on a 25 percent discount.
Rolls Royce (LON:RR.) is Goldman Sachs' top European civil aeropick for 2012.
In a note, analyst David Perry said Goldman had upped its 12 month price target for the stock to 975 pence from 925 pence and raised its EPS estimates for 2011, 2012 and 2013 by 2,4,and 4 per cent respectively.
Perry says the banks analysis has shown the engineering group to be structurally well placed against its peers and has many other investment attractions - namely, a very strong balance sheet, healthy dividend cover, and more defensive characteristics than many cyclicals.
"We reiterate our Conviction List Buy," he said.
Serica Energy (LON:SQZ) revealed this morning it had won a further two production licences in the latest round of UK offshore licensing.
Block 110/8b in the east Irish Sea, where a gas prospect has been provisionally identified, has been offered as a 100 per cent interest with the firm as operator.
Meanwhile, four blocks in the southern North Sea have been offered as a single licence to a group in which Serica has a 37.5 per cent stake, it said today. Centrica is the operator for this group.
Broker Oriel Securities rates the stock a 'buy' and said in a note today that its net asset value (NAV) for the firm stood at 31 pence per share excluding exploration with further upside from unutilised UK tax losses.
