Broker Roundup Pt 1 including Ocado, British Sky Broadcasting, ARM Holdings, BHP Billiton, Imperial Tobacco and Hummingbird Resources


Online grocer Ocado Group (LON:OCDO) is rated a 'buy' today by Goldman Sachs, which said that expansion plans for the company's distribution centre and customer services issues lay at the heart of the firm's prospects.

Full year EBITDA stood at £27.9 million, which implied margin of 4.7 per cent, was in line with the investment bank's expectations, said analyst Karen Hooi, who added that management now expected first quarter sales growth to be around 10 per cent and for sales growth to improve as the year progresses due to capacity expansion from its distribution centre called CFC1.

Hooi said she continued to believe that the successful expansion of capacity and continuing improvements to customers was key for Ocado to meet Goldman's revenue and profitability estimates.

"The company expects to be able to reach capacity in excess 160,000 orders per week owing to CFC1 expansion by the end of FY2012. The development of CFC2 remains on track in terms of timing and budget. We continue to expect the completion of CFC2 in late 1Q13," she said.

Goldman targets a price of 105 pence each for Ocado shares.

The City heavyweight also has a 'buy' stance on chip designer ARM Holdings (LON:ARM), targeting a price of 800 pence for the shares, and said it delivered a very strong Q4 statement and a confident outlook statement.

Goldman also reiterated its 'Conviction buy' for British Sky Broadcasting (LON:BSY) and said its second quarter figures were "strong".

For the six months to end 2011, the group posted revenue up 6 per cent to £3.4 billion. while operating profits were up by 16 per cent to £601 million, a new record.

It also responded to the threat of new online rivals by launching its own internet TV service.

Goldman said the new service should be an attractive alternative to Netflix/Lovefilm, while it expects BSkyB to ensure it does not cannibalize its main pay-TV offer.

"Overall these initiatives should alleviate concerns over BSkyB rolling out fibre itself or being affected by Netflix/Lovefilm in the short to medium term. It also hinted that pay-TV prices could increase in Sep 12," said analyst Vighnesh Padiachy.

Turning to the mining sector, German bank Deutsche said of BHP Billiton (LON:BLT) that one of its 'key' challenges this year was to convince shareholders that investing in capital-intensive projects over an extended period would deliver “acceptable” returns.

This is highlighted in regard to its four "mega projects" which Deutsche assesses as US onshore oil and gas, the Olympic Dam expansion, Jansen Potash and the Outer Harbour iron ore project.

"The Mega projects are those with large upfront “flag fall” capex and long project build times (perhaps up to four stages). Despite investor concerns that these projects will depress returns over the near term, we think that on balance the positive attributes outweigh these concerns," said Deutsche analyst Grant Sporre, who rates the stock a 'buy' with a target price of 2,550 pence.

Meanwhile, Myles Allsop at UBS, said Xstrata's (LON:XTA) fourth quarter production improved quarter-on-quarter and was slightly above the Swiss bank's estimates.

He rates the stock a 'buy' saying the firm has an attractive commodity mix and growth pipeline. UBS gives the shares a target price of £1450 pence - based on 1 times NPV (net present value) using a 10 per cent discount rate.

"We expect the share to re-rate if management delivers organic growth as planned and commodity fundamentals remain strong," said the analyst.

In other coverage, Imperial Tobacco (LON:IMT) is rated a 'buy' by Oriel Securities, which targets a price of 2750 pence (current price: 2312 pence) for the stock.

The firm has released first quarter figures for 2012 and Oriel said that as expected, volumes were sharply down, but the broker added that tobacco was all about pricing, which rose 6 per cent in the first quarter.

It said it was maintaining its full year forecast of flat to more than 1 per cent volume and plus four per cent revenue.

Elsewhere, Daniel Stewart analyst Austin McKelvie welcomed exploration company Hummingbird Resources' (LON:HUM) statement, in which it unveiled a maiden resource for its Tuzon prospect in Liberia of 2.05 million ounces of gold bringing the global resource estimate for the Dugbe 1 project area to 3.8 million ounces.

The company also told investors there was scope for further resource growth within a minable radius of the original Dugbe F deposit.

"Hummingbird’s phenomenal exploration drilling programme in Liberia’s Birimian, has distinguished the company with one of the fastest growing gold resources in West Africa," said the analyst in a note.

McKelvie added that based on an enterprise value per resource ounce of US$60 per ounce gold, that would give an implied market cap of US$222 million or £141million -  translating into a share price of £2.65.

"This implied valuation excludes Hummingbird exploration prospects at Crocodile Hill, Sackor 1 & 2 and Gold Hill, all within a 4km radius of the Dugbe F project," he highlighted.

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