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Broker Round-up: AG Barr, Britvic, Kingfisher, easyJet, AZ Electronic Materials, GlaxoSmithKline

Last updated: 13:23 25 Jul 2013 BST, First published: 12:23 25 Jul 2013 BST

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Upgrades swept across the City like a summer heatwave on Thursday as brokers threw their weight behind the companies they think will benefit from the scorching temperatures of late.

Among the beneficiaries will be soft drinks groups AG Barr (LON:BAG) and Britvic (LON:BVIC), as well as DIY giant Kingfisher (LON:KGF), if City scribblers are proved correct.

The Irn Bru maker and Robinsons squash company may have shelved their proposed merger despite the green light from regulators, but analysts still see reasons to invest in the pair.

Investec tipped AG Barr to sell plenty more of the orange stuff over the summer after getting a boost from the recent warm weather with second quarter growth expected at almost 10%.

The broker nudged its target price up to 585p, sticking to its ‘add’ recommendation.

Broker Panmure Gordon is less optimistic about the prospect of the shares shooting up with its ‘hold’ stance and 500p target price.

“We maintain that AG Barr is a well-run company, with a strong balance and is delivering against its organic growth strategy,” said Panmure.

“However we feel that is already reflected given the shares are currently trading on 20.8x PE [price-to-earnings] and 13.5x EV/EBITDA [enterprise value/underlying earnings] for CY [calendar year] 2013”

It prefers the investment case at Britvic (LON:BVIC), which unveiled a strong third quarter today.

The broker even lifted its full-year earnings forecast by £2mln to £132mln to reflect the impact of the summer sun.

Investec though cut the stock from ‘buy’ to ‘hold’ after trimming its target price to 516p now that the merger with AG Barr is off the table.

“With the current stock price slightly above this level, we therefore move our recommendation to Hold,” it said.

Citigroup sees things picking up at B&Q owner Kingfisher and its target price heated up to 455p.

Its barbeques and deck chairs have been flying off the shelves as the retailer recovers from the April showers that stopped shoppers browsing its huge stores.

While Citi has a ‘buy’ tag on the DIY retailer, Société Générale is not so upbeat.

The French broker has a ‘hold’ recommendation for investors, saying that the recovery from the slow sales is already “baked in” to the share price.

“Improved housing market confidence, helped by the Funding for Lending and Help to Buy schemes, should prompt a greater willingness to invest in the home and there may even be some pent up demand to come through,” it admitted.

Hot weather is generally not good news for airlines as sun seekers feel less inclined to go in search of warmer climes. 

But easyJet (LON:EZJ) has shown no signs of a meltdown with a strong start to summer.

Jefferies upgraded its target price by 50p to £14.70, but the New York-based broker reckons the share price will take a breather, having been the top performer since joining the Footsie in Easter.

A downgrade from Deutsche Bank dragged specialty chemicals provider AZ Electronic Materials (LON:AZEM) down 7% on Thursday.

It no longer rates the shares a ‘buy’ with the risk-reward balance not nearly attractive enough for the top recommendation.

Elsewhere, City pointy-heads agreed that the Chinese scandal will not have as much of an impact on GlaxoSmithKline (LON:GSK) as some believe.

Panmure Gordon, Deutsche Bank and SocGen all stick by their ‘buy’ ratings despite the media frenzy surrounding the corruption crisis.

“Clearly China is much more important a market to GSK with revenues exceeding £1bn, but clearly the scale of any possible penalties do not seem thesis changing to us although we continue to monitor the situation closely,” said Panmure.

SocGen added: “With the GSK investment thesis intact (R&D pipeline-driven leverage) and with the shares materially weak on the China headlines, if our hypothesis is correct, at c. 1,670p, the shares offer significant upside potential.”


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