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Broker Round-up: Shell, BP, AstraZeneca, Glencore, easyJet, Ryanair, HomeServe, APR Energy

Published: 12:17 10 Jan 2014 GMT

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City scribblers took it upon themselves to kick-start the wheeling and dealing on a quiet day's trading.

And it worked, with a raft of ratings changes sparking share price rises and falls.

BNP Exane Paribas kicked off proceedings with an upgrade for Shell (LON:RDSB), now ‘outperform’. The broker hailed a “new dawn” for the oil giant as the arrival of new boss Ben van Beurden provides an opportunity to reassess the company’s credentials.

“While we see BVB bringing continuity - do not see scope for a strategic revolution - we do believe that the combination of more active disposals, a more shareholder friendly approach with increasing distributions and more capital discipline could get the stock going,” it said.

BG Group (LON:BG.) joins Shell on the ‘buy’ list but BP (LON:BP.) moves to ‘neutral’ given the slow progress on cashflow generation and the continuing fallout from the disastrous Gulf of Mexico oil spill in 2010.

“All in, while we remain confident that BP should be successful, we are concerned that the legal rumble could linger on for a while, further capping the upside to the stock.”

Influential broker UBS initiated its coverage of the pharma sector with AstraZeneca (LON:AZN) as one of its ‘buy’ calls, injecting life into the shares.

UBS analysts Alexandra Hauber reckons the restocking of companies’ medicine cabinets could lead to upgrades to here generally cautious forecasts.

In 2014, AZN, Roche and Novartis have substantial newsflow on entire portfolios of projects, most of which are not reflected in estimates, she says. 

Mining shares face a difficult start to 2014 before things start to improve towards the end of the year, Barclays Capital predicts. 

Forecasts for cash flows and earnings growth turn positive in 2015 so at some stage in 2014 the market may start to price in recovery, but the first quarter is likely to see a continuation of 2013’s tough conditions for the sector, said the broker.

Barclays favours companies that can deliver earnings growth in a flat price environment, with the two companies it has upgraded having a copper focus. 

Glencore (LON:GLEN), up 2.9%, is one of these and is now rated ‘overweight’.  It is also now one of Barclays’ two top diversified picks alongside sector bellwether BHP Billiton (LON:BLT).

Fresnillo (LON:FRES) and Vedanta (LON:VED) were in the firing line, with ratings cut to ‘equal weight’ and ‘underweight’ respectively.

Broker Liberum Capital reckons the budget airlines easyJet and Ryanair still offer growth in the long term, but for now are fairly valued.

It has downgraded the duo from 'buy' to 'hold' but left target prices unchanged at 1,600p and €6.40 respectively.

Emergency home repairs group HomeServe (LON:HSV) enjoyed a 5% share price rise on the back of an upbeat note from City firm UBS.

The company, which provides emergency plumbing and boiler support, faces an “absolutely critical” three months ahead with plenty to be done, according to the broker.

But if it unveils robust trading in the next couple of statements, there is value to be found in the shares, adds UBS, which upgrades the shares to ‘buy’ with a higher target price of 320p.

“We take a risk in upgrading today and acknowledge that HSV has disappointed on market earnings expectations on a couple of times over the last two years,” said analyst William Vanderpump. 

“However the worst case scenarios envisaged back in 2011 have not materialised: UK partners have remained loyal, UK customer appetite for core products remains and contagion into the International business has not occurred.”

He believes the 2015 financial year represents the earnings trough, which should be a catalyst for investors to assess the longer-term prospects.

Shares in temporary power provider APR Energy (LON:APR) meanwhile charged higher as news of a contract extension was accompanied by an upgrade from UBS.

The company revealed the contract for its 200 megawatt diesel power module project in Libya was renewed – a deal which was picked out by City analysts as key to the firm.

An upgrade from UBS proved good timing as the broker lifted the company off its ‘sell’ list.

As well as upgrading to ‘neutral’, the Swiss broker raised its target price to 900p from 800p.

The company also emerged on Liberum Capital’s list of stocks to sell in 2014. However, the broker had pointed out that the biggest risk was the contract renewal process in Libya.

Perhaps it will revise its recommendation on the back of the news. Also on the “highest conviction sell” list was Mothercare (LON:MTC), which slumped 30% after its profit warning.

Among the best-rated stocks on Liberum’s books are bike-to-car parts retailer Halfords (LON:HFD), newspaper group Trinity Mirror (LON:TNI) and potash miner Sirius Minerals (LON:SXX). 

Canaccord Genuity produced its top picks for 2014 from the mid and small cap sectors, with online betting company bwin.party (LON:BP.Y) making the grade, along with Kurdish oil group Genel Energy (LON:GENL), Frankie & Benny’s owner Restaurant Group (LON:RTN) and trade finance company Tungsten Corp (LON:TUNG).

Elsewhere, it was a busy day for UBS, which also included an upgrade on Capita (LON:CPI) and a downgrade to ‘neutral’ for embattled outsourcing group Serco (LON:SRP).

There was also a downgrade to ‘neutral’ on Cable & Wireless Communications (LON:CWC) just days after the arrival of new chief Phil Bentley. There will be no worries about the heating bill for the former British Gas boss as he has just set up shop in Miami.


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