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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 2 including: Proability, ENK, Alliance Pharma, Ferrex and Nyota Minerals
June 25 2012, 4:09pm
The UK’s summer washout has hit UK clothing retailers hard and heavyweight broker Morgan Stanley has downgraded forecasts for three of the country's stalwarts.
Even a ray of sunshine in July and August will come too late to help sales recover as stores are already starting their summer clearance sales, says the US broker.
According to research conducted by PwC, 73 per cent of high street stores had started sales or were advertising promotions in their shop windows last week, compared to 70 per cent at the same time last year.
Like-for-like sales expectations at M&S (LON:MKS), Next (LON:NXT) and Debenhams (LON:DEB) were all cut by between 3 and 5 per cent for the quarter.
The downgrades however do not drip down into later years and the broker left price targets unchanged.
Analyst Geoff Ruddell said: “We think it is now too late in the season to make back lost sales and that forecast downgrades are necessary.”
Ruddell added that although higher markdown costs are anticipated, M&S and Next gross margin expectations are unchanged because previous forecasts were too conservative.
Of the three retailers Debenhams received the largest earnings downgrade, with pre-tax profit estimates for the year reduced by 6.1 per cent to £155 million.
However the broker adds that Debenhams retains its ‘top pick’ in the UK general retail sector and an ‘overweight’ recommendation.
M&S and Next meanwhile hold onto their ‘equal-weight’ recommendations.
Despite the rain, this summer could be a “bonanza” for European airlines as fares are high and fuel is low, according to broker Liberum.
As a result British Airways owner International Airways Group (LON:IAG) has been upgraded to a ‘buy’ by the broker.
Fuel has risen progressively over the last couple of years.
It has spent most of 2012 trading between US$1,000-US$1,1000 per tonne, but since the beginning of May the price has declined to US$874 per tonne.
The broker now forecasts underlying earnings in 2012 to reach €378 million, up from €143 million.
Analyst Peter Hyde said: “In the short-term we believe that tight capacity discipline, high fares and falling fuel prices are likely to drive earnings upgrades.
“We have therefore raised our target price to €2.55 per share.”
BSkyB (LON:BSY) received a sunny upgrade from investment bank Espirito Santo which says it can see - for the first time in years - potential for a greater than 20 per cent upside in the shares. It was upgraded to 'buy'.
Analyst Giasone Salati gives the stock a fair value of 820 pence and says the launch of the new broadband entertainment service, launching this summer and the recent Premier League TV rights deal will prove to be positive catalysts in next 12 months.
Shire (LON:SHP) slipped to the bottom of the FTSE 100 pile this morning after news that American regulators approved a rival’s application to manufacture a generic copy of its hyperactivity drug.
However heavyweight broker JP Morgan said the drop in the share price could make for an attractive long-term entry point.
JP Morgan gives an ‘overweight’ stance on the stock and price target of 2360 pence.
Broker Numis reckons mobile gaming specialist Probability’s (LON:PBTY) recent run of good news will shine through in revenues in the current quarter.
Probability, best known for the LadyLucks mobile and tablet-based slot games, has seen marketing successes while regulatory changes in Italy have made it a potentially viable new market.
Numis said that the LadyLucks app has been available to Apple users since 9 June, while LadyLucks was also among the first to use social media giant’s Facebook’s ‘sponsored stories’ to access the mobile advertising market.
For mobile-only businesses such as Probability this is a potentially important development, the broker said.
Numis has a price target of 150 pence.
Nickel laterite company ENK (LON:ENK, ASX:ENK) is making good headway on its bankable feasibility study (BFS) at the flagship project in the Philippines, according to broker Ivestec.
Analyst Hunter Hillcoat says the company’s cash balance of US$33.7 million – US$21 million of which was generated through the sale of Caldag in Turkey – gives it sufficient funding to complete the BFS, which is due by the end of the third quarter this year.
Investec lowered its target price to 29 pence from 34 pence but remains a ‘buyer’ of the stock.
Elsewhere broker Numis suggested Alliance Pharma (LON:APH) could try to weather its supplier setbacks by reducing its promotional activities for its oncology drugs.
The broker reduced its pretax profit estimates by £1 million in 2012 to £9.9 million. It also downgraded the company to an ‘add’ recommendation from ‘buy’ with a price target of 28 pence per share.
Sanofi-Aventis, the manufacturer of bladder cancer drug Immucyst, which Alliance distributes in the UK and Ireland, has ceased supply of the drug due to production problems.
The drug is not likely to be available until late 2013.
Fairfax analyst John Meyer said that a big improvement in capital costs at Ferrex’s Malelane iron ore project in South Africa made the small iron ore project even more attractive.
A new scoping study slashed the estimated cost of the project by more than half to US$139 million from US$297 million.
He added the company will be looking to improve mining costs as they progress the project to the next stage.
Nyota Minerals (LON:NYO, ASX:NYO) unveiled promising drill results from exploration drilling in Ethiopia today, including bonanza gold over an interval of less than one metre.
It found an intercept of 6.11 g/t gold over 17 metres had been found at the Tulu Kapi feeder zone, which broker Ocean Equities highlighted as an important aspect of the Tulu Kapi story.
Analyst Christopher Welch added that the geology at Bendokoro had shown there was potential for a gold deposit but further drilling was warranted.
The share price was up 6.2 per cent to 5.44 pence per share.
