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Broker Roundup: HSBC eyeing up the bookies' form

Broker Roundup: HSBC eyeing up the bookies' form

Few who follow the machinations of the markets will believe in karma. 

However, there was a little payback for BAE Systems (LON:BA) earlier, which suffered a downgrade at the end of a fairly hectic week in which it revealed plans to cease shipbuilding in Portsmouth.

However it was jet fighters rather than frigates that concerned Investec and specifically negotiations over a Saudi order for 72 Typhoon aircraft, known as the Salam deal.

The City broker has pegged back its recommendation to ‘hold’ from ‘buy’ and has rolled back its price target to 460p from 485p a share.

Sticking with Investec, but moving to the mining sector, its analysts released ‘sell’ notes on Lonmin (LON:LMI) and Glencore Xstrata (LON:GLGH).

The former was a downgraded from ‘reduce’ with the price target going to 266p from 280p. The stock is currently changing hands for 328p.

Separately, the broker initiated coverage of Glencore Xstrata with a price target of 307p (current price 330.3p), which underpins its negative stance. 

“Trading activities may provide peerless insight into commodity markets, but we worry whether the policy of maintaining an aggressively geared balance sheet is really appropriate following the merger with Xstrata,” analyst Marc Elliott said. 

“With the industrial side of the business vulnerable if commodity markets underperform, we see Glencore Xstrata as exposed to greater refinancing risk than its peers.”

The day after jump jockey Tony McCoy rode his 4,000th winner, HSBC looked at the form of the bookmakers.

It said the sector faces pressure from higher taxes in online operations; this will be tough to offset in the short term and  while retail estates are steady these unlikely to generate enough near-term growth to compensate; neither will Australian or other foreign operations, argued HSBC.

Best of the bunch is Betfair (LON:BET), which the broker says has the greatest self-help potential and gets an overweight recommendation and 1,245p target price. 

Ladbrokes (LON:LAD), one of the big two, also has plenty of scope to tighten up its operations. The target for Ladbrokes is 200p, with the recommendation ‘neutral’. 

Paddy Power (LON:PAP) and sector leader William Hill (LON:WMH) though are rated as ‘underweight’, with targets of 56p and 385p respectively.

It was a fairly rubbish day too in terms of market coverage for the waste management firm Shanks (LON:SKS), which was downgraded to ‘neutral’ from ‘outperform’ by heavyweight investment house Credit Suisse after the stock hit its 110p a share price target.

It says the fundamentals of the business remain intact, but the current valuation is fair. 

It points out that Shanks is trading at around 20 times prospective earnings, while the dividend yield is 3.2%.

The knives were also out for satellite specialist Inmarsat's (LON:ISAT) whose near term trading prospects have deteriorated, according to Societe General, which rates the shares a 'sell'.

The broker said Q3 sales had disappointed on weaker maritime and land data, as well as US government sequestration budget cuts.

It has cut its sum-of the parts price target for the stock to 650p from 670p previously.

Barclays has also moved the shares to 'equal weight' from 'overweight'.

In short supply Friday were upgrades, though Babcock International (LON:BAB) received a lift as Goldman Sachs moved the engineering services group onto its 'conviction buy' list from 'neutral'.

Investors will receive a decent lift if Babcock hits Goldman’s £17.50 a share price target.

No–frills airline easyJet (LON:EZJ) will feel the impact of rival Ryanair’s move to more aggressive pricing and improvements to its customer service, but it still remains broker Investec’s sector pick.

On an earnings valuation it says the airline is its key sector pick, while a price target of 1,500p based on cash flows also implies more upside. Shares today rose 8p to 1209p.

Halfords' (LON:HFD) impressive half year figures could be just the start of years of growth for the cycle to car parts retailer, according to broker N+1 Singer.

The broker highlighted the strong performance of the retail arm in the second quarter, where like-for-like sales grew for the fifth successive quarter and pre-tax profits beat expectations by 14% in spite of a tough comparative period last year that included the Olympics. 

N+1 has raised its profits forecast for the full year by 12% to £68.5m after the much better than expected interims, with £74.5mln (an 11% upgrade) now pencilled in for 2015 and £88.5m for 2016.

Further upgrades are possible in the short term due to improving UK consumption and the investment case remains compelling it said. The share price target rises to 540p, while N+1 has a ‘buy’ stance.

Finally, broker Liberum’s weekly screen always makes quite a lively read. 

Its latest missive points to the merits of buying stocks that are trading on low price to book ratios.

This strategy would have delivered well above average returns.

Using this approach, investment firm SVG (LON:SVG) and corporate finance house Oakley Capital (LON:OCL) are ‘key buys’, Liberum said. They screen as cheap, while the market is attributing “little upside potential” of another of Liberum’s picks, Vertu Motors (LON:VTU).

It also believes Centamin (LON:CEY) will be re-rated once the perceived risk of operating in Egypt dissipates.

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