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Broker Roundup Pt 1 including Bovis, Taylor Wimpey, Bellway, Antofagasta, Petra Diamonds and Imperial Tobacco
The UK house building sector has started the new year well, with around an average 7 per cent rise in share prices, said Wall Street bank Citi.
Analyst Clyde Lewis said in a note on the sector that this was helped by strong trading updates from a number of house builders at the start of the month.
However the analyst said that outlook for the UK remained "muted" at best with european macro uncertainty. The risk for the housing market within Citi's forecasts came mainly from the rising unemployment count which is expected to hit 9.4 per cent this year, he said.
"We continue to believe that the sector will see further decent margin progress in 2012 even against a backdrop of static volumes and prices," he said.
He said he has upped his recommendation on Bovis (LON:BVS) to 'buy' on the back of the modest increase in the target price, while conversely pulled his rating on Taylor Wimpey (LON:TW.) back to 'neutral'.
"We continue to be buyers of Bellway (LON:BWY) and Persimmon (LON:PSN) with a Neutral rating on Barratt (LON:BDEV), Berkeley (LON:BKY) and Redrow (LON:RDW).
Citigroup has also maintained its "sell" rating on Antofagasta (LON:ANTO) and targets a price of £10.10 for the shares - down from £10.60.
Citi said that the firm reported solid fourth quarter production figures but guidance for the production and costs for 2012 were 4.7 per cent lower and 4 per cent higher respectively against Citi's estimates.
"The lower than expected production guidance boils down to lower grades at Los Pelambres and production at pits with high strip ratios at Michilla. In addition, the power contract at Los Pelambres is due for renewal at end 2012 and we think it is likely that costs for this mine go up again in 2013. Provisional pricing negatively impacted earnings by $285mn in 2011 due to copper and $25mn due to molybdenum," said analyst Anindya Mohinta.
Following this, said the analyst, Citi had raised 2011 EPS by 3.8 per cent to reflect the strong production numbers but cut 2012 and 2013 EPS estimates by 7 per cent and 10 per cent respectively - consequently lowering the firm's target price.
City Heavyweight Goldman Sachs today rated Petra Diamonds (LON:PDL) a 'buy' after it gave its trading update for the first half.
"This contained disappointing sales data but gave positive news on the production outlook," said the investment bank, which targets a price of 190 pence for the stock.
Despite stockpiling its diamond production because of weak pricing, and an earlier sales cycle cut-off as a result of the December holidays, the trading update confirmed that the company is on track to meet its production target of 4 million carats in 2014.
Analyst Eugene King added that Goldman was lowering its EPS forecast to US$0.14 from US$0.15 to reflect lower than expected full year 2012 pricing.
Turning to tobacco, Imperial Tobacco (LON:IMT) was upgraded today by broker Nomura to 'neutral' from 'reduce'. Nomura downgraded the cigarette firm in November last year because of concerns over margin pressures developing.
"We also took a view that, whilst we still see the prospect for more major M&A in the space materialising, this would not be a “risk” until
late 2012/2013," said analyst David Hayes.
However, said the analyst, after the resolution of government stake sale at JT (Japan Tobacco) in April/May, and the medium term strategy outlook presentation from JT as well in April – Nomura sees the investment case inevitably being more influenced by prospects for consolidation activity and less influenced by prospects for earnings cuts on risks of underperforming versus consensus.
