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Broker spotlight: Gold, Supermarkets, Diageo, Prudential, BHP Billiton


The way it keeps hammering the gold price, perhaps it’s time for Goldman Sachs to drop any reference to the precious metal from its name.

Today it chopped its forecast for gold for the current year to US$1,300, from US$1,435, and in 2014 to US$1,150 (US$1,270), which represents a potentially eye-watering level for many gold miners.

The US broker sees no respite from the recent selling by holders of exchange traded funds (ETFs) and doubts whether jewellery buyers or central banks will be able to make up the shortfall.

In a very nervy market for all things gold-related, miners Randgold Resources (LON:RRS) fell 82p to 4,126p, African Barrick (LON:ABG) dropped 5p to 116p and silver and gold group Fresnillo (LON:FRES) fell 18p to 893p.

Liberum Capital thinks analysts might need to dilute their fiscal fourth quarter sales estimates for alcoholic spirits behemoth Diageo (LON:DGE).

The broker has downgraded the Smirnoff and Johnnie Walker brands owner to ‘hold’, as it reckons performance in the three months to the end of June will be even more disappointing than the preceding quarter.

The contribution of recent acquisitions will begin to be factored in to year-on-year comparisons, making top line growth harder to achieve, while the imminent departure of highly-regarded chief executive Paul Walker is also likely to act as a drag on the share price.

Citi, meanwhile,  issued  a sobering assessment of the food retail sector and with it downgrades to Morrison (LON:MRW) andSainsbury (LON:SBRY).

The American bank demoted Sainsbury to ‘sell’ from ‘neutral’, while Morrison goes to ‘neutral’ from ‘buy’. 

Tesco (LON:TSCO) remains unloved and on a ‘sell’ rating and cash and carry group Booker (LON:BOK) is the only UK business makes it onto the ‘buy’ list. 

“Investing in the sector on the basis of easy monetary conditions and low high-yield bond yields no longer seems, in our opinion, to make so much sense,” Citi added.

“GDP growth looks like it will stay sluggish for some time and square footage growth is set to get still-lower: these two factors are liable to mean industry profit growth is slower than in the past. 

“As stated, growth in times past was none-too-swift.”

Meanwhile, worries over Asia at the Pru are overdone says Merrill Lynch, which has repeated its 'buy' stance on life insurer Prudential (LON:PRU) saying the risk to the stock from the Asian market is less than might be expected.

The group's Asian business is more sensitive to changes in numbers of customers signing up for its products than it is to macro issues such as QE tapering.

"We see close to 25% total return potential from the shares over the next 12 months and reiterate our Buy rating," says analyst Blair Stewart, who notes the shares have lost 15% of their value in recent weeks.

UBS put the spotlight on BHP Billiton’s (LON:BLT) iron ore business, after a ‘roundtable’ meeting with management, and emphasised the group’s strategy for disciplined growth.

BHP is very confident in its 183mln tonne production target for 2013, according to analyst Myles Allsop. Meanwhile he highlighted that BHP’s Guinea and Liberia projects are up for sale - and UBS says they’re worth US$200mln.

“BHP is cutting costs, with for example some contracts renegotiated 15% lower year-on-year and headcount falling,” the analyst said in a note.

UBS rates BHP as a ‘buy’ with a £24.70 target.

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