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Broker Roundup Part 1 including: Croda, Johnson Matthey, Drax, Balfour Beatty, Gulf Keystone Petroleum and Lloyds

Last updated: 16:38 11 Jul 2012 BST, First published: 20:38 11 Jul 2012 BST

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Broker UBS said it continues to like UK chemicals companies for fast growth, defensive positioning and their high tech, specialty nature.

The broker however downgraded Croda International (LON:CRDA) to ‘neutral’ from ‘buy’ on valuation grounds after outperforming the average of the higher names in the pan-European chemicals space by up to 50 per cent over 12 months.

Analyst Thomas Gilbert said: “Other than valuation and stock outperformance we find nothing to criticise with Croda.”

UBS downgraded other “quality” name Johnson Matthey (LON:JMAT) using similar logic however it also cut earnings by 4 per cent per annum, due to lower in-house price forecasts for gold, silver, platinum and palladium.

The Drax (LON:DRX) investment case is very complex, according to broker Morgan Stanley but it gave the energy firm an upgrade to ‘equal-weight’.

The broker said the commodity outlook remains tough but can see potential upside risk to the level of subsidy biomass generators it could receive.

Analyst Bobby Chada said: “We only see longer term upside to the shares if government policy remains favourable and if Drax can overcome the challenges in place.” 

The challenges referred to include firstly developing a supply chain to enable burning large quantities of biomass, and secondly that burning large quantities of biomass will have no significant detrimental impact on the boiler. 

Chada added: “With a fairly balanced risk reward, and little visibility on biomass at present, we upgrade to Equal-weight.”

Elsewhere in the industrial sector UBS downgraded Balfour Beatty (LON:BBY) on the basis that the company has suffered from a severe reduction in UK government infrastructure work and a de-rating of US comps.

Analyst Gregor Kuglitsch said: “We believe Balfour Beatty’s valuation is now less compelling and accordingly we cut our rating to ‘neutral’ from ‘buy’.

HSBC research upgraded Gulf Keystone Petroleum (LON:GKP) to ‘overweight’ from ‘underweight’ after a recent decline in the share price.

“The price decline leaves the shares trading below core asset value and provides investors a good entry point, in our view “

The broker lowered its price target to 264 pence per share form 280 pence per share based on recent drilling results, lower cash balances and foreign exchange movements.

As one of the 16 banks that submitted Libor rates and a worsening macro environment Lloyds (LON:LLOY) was downgraded to ‘sell’ from ‘buy’ by broker Liberum.

The broker acknowledges that Lloyds has outperformed Barclays by 23 per cent and RBS by 14 per cent due to a relatively favourable review from credit monitors Moodys.

But this for the broker is not enough to offset the fact that Lloyds is exposed to Libor litigation risk.

Liberum said: “We downgrade from ‘buy’ to ‘sell’ with target price 28 pence, from 29 pence.”

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