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Broker Roundup: ENRC, ARM Holdings, Smiths Group, Dairy Crest, HSBC

Last updated: 12:33 04 Jun 2013 BST, First published: 11:33 04 Jun 2013 BST

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The consortium bidding to take full control of embattled Kazakh miner ENRC (LON:ENRC) have been handed a three-week extension to conclude a deal.

The trio of oligarchs and the Kazakh government are hoping to up their 56% stake in the company amid more allegations of fraud.

Kazakhmys (LON:KAZ), which owns just over a quarter of ENRC, is crossing its fingers that the bidders come back with an offer bigger after they tabled a 260p a share proposal.

But UBS points out that given the lack of alternatives, Kazakhmys may be forced to settle for a lower bid.

The broker says the initial offer is not a fair reflection of ENRC’s value – it has a net present value (NPV) of 640p a share.

“We believe the initial offer materially undervalues ENRC (compared to our 640p NPV),” said analyst Daniel Major.

“However, despite having a strong bargaining position (26% blocking stake), press reports suggest Kaz may be willing to accept a lower offer than we previously thought to get the deal done (Sunday Times says Kaz has signalled privately it will accept whatever the final offer is).”

UBS slaps a 285p target price – along with a ‘buy’ rating – on ENRC, which is the mid-point of its takeout range, and higher than the current bid.

“Despite the limited number of alternatives (for Kaz and ENRC minorities) we still see potential for a modest bump and set the upper level of our range at 320p/sh.”

The threat to ARM Holdings’ (LON:ARM) dominance in the computer chip designing market is growing.

That’s the view from the City, which struck a downbeat tone on the company as big rival Intel makes its push into the tablet and smartphone market.

Societe Generale saw no reason to scrap its ‘sell’ recommendation, even though investors have already accounted for a challenge from Intel, whose chip will power a new 10.1-inch Galaxy tablet.

“Intel is now set to focus on tablets and high-end smartphones with its new Silvermont processors, pitching at ARM’s most lucrative customer base,” said analyst Peter Knox.

“ARM’s new market opportunities in servers and networks are not big enough – we estimate only 10% of FY 17 sales – to shift the needle.”

The shares slumped yesterday and lost another few pennies this morning to stand at 912p. The French broker has a target price of 640p.

Engineering company Smiths (LON:SMIN) is eyeing a possible £2bn sale of is medical division. Citi likes the decision, but still takes a ‘sell’ stance as it believes the disposal is already in the share price.

It chopped its target price from £12.70 to £10.20, adding that “we do not see a full break up as likely and we see it as already more than factored in the valuation”.

Got milk? If not, Credit Suisse suggests you keep it that way as it dropped dairy specialist Dairy Crest (LON:DCG) to ‘underperform’ from ‘neutral’.

Since it offloaded its French spreads business, the broker points out that Dairy Crest shares have risen significantly. It does not believe the company merits this rating as its 465p target price implies.

Banking giant HSBC (LON:HSBA) performed well on Tuesday, thanks in part to a good write-up from Goldman Sachs.

Analyst Frederik Thomasen says the bank is well set to beat expectations through 2016.

“A combination of lower-than-expected credit costs and capital consumption would provide HSBC with considerable capacity to step up the dividend payout ratio and buy back shares, thus boosting upside to market projections for per share earnings and dividends,” he said.

The tipster says investors could see a 32% return on their investment if the shares hit his 950p target. 

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