Broker Round-up Part 2: London Mining, Dragon Oil, Valiant Petroleum, Xcite Energy and Advanced Computer SoftwareReported by Proactive Investors on Wednesday, 13 June 2012 (on June 13, 2012)
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HSBC shook up its ratings on supermarket stocks today in its note on the food retail sector.
Supermarket giant Tesco’s (LON:TSCO) shares took a beating in January following its profit warning. Ever since, the shares have remained just above the 300 pence mark.
But HSBC thinks the market is “overly worried” about the company, calling comparisons with troubled French store Carrefour “unfair”.
Although it admits it is no longer a growth stock, the broker believes management has better control of its margins than initially feared, upgrading the stock to ‘overweight’ from ‘neutral’ with a slightly trimmed price target of 360 pence a share.
Finding itself at the bottom of the pile was Morrisons (LON:MRW), which moved the other way with a downgrade to ‘neutral’ from ‘overweight’.
The broker sees a lack of clear short-term catalysts for the share price, while the scope for positive earnings surprise is limited in the short-term, it says.
Sainsbury’s (LON:SBRY) was unmoved in the broker’s valuations after revealing an increase in sales this quarter, boosted by spending during the Jubilee bonanza.
It is still seen as ‘neutral’ with a target price of 310 pence by HSBC.
Analyst Jerome Samuel issued a note of caution to investors tempted by the supermarket sector.
“UK food retail has certainly entered a new era where growth will be more difficult to secure than it has been in the past decade,” he said.
Shares in all three fell today, but most notable was Sainsbury’s, whose shares tanked over three per cent to 282 pence.
Phone and broadband provider TalkTalk (LON:TALK) is not as attractive as it was, says Goldman Sachs.
The US heavyweight highlights the share price outperformance for the reason behind the downgrade to ‘neutral’ from ‘buy’, even though returns are on the up.
Barclays Capital says it’s back to the good old days for electric utility company SSE (LON:SSE).
The broker thinks the FTSE 100 firm is set to return to double-digit earnings growth from back in its heyday following five years of “sluggish growth”, bumping it up to ‘overweight’ from ‘neutral’.
The target price has been raised significantly to 1,585 pence, a 28 per cent jump from the previous target of 1,235 pence.
Iron ore producer London Mining (LON:LOND) has been ranked alongside mining giants Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) by Credit Suisse.
The broker was hugely bullish this morning on the company’s prospects in its note on iron ore companies.
It believes it is well placed to withstand the falling demand for iron ore, driven by slowing Chinese steel growth, with prices expected to drop over the coming years.
Shares lifted almost two per cent today to 212 pence.
Elsewhere, the Swiss broker reiterated its ‘outperform’ rating and 868 pence target price on Dragon Oil (LON:DGO) today, underlining its strong balance sheet options.
The share price climbed 9 pence today to 541 pence.
Oriel Securities issued ‘buy’ stamps on both Valiant Petroleum (LON:VPP) and Xcite Energy (LON:XEL) today.
It says the former’s announcement that the Tryfan well has spudded is good news as it looks like a low risk well “that could be very material for Valiant”.
“Given Valiant's shares are trading at a 45% discount to our Base NAV of 675p/sh we see limited downside risk and material upside potential from this well,” the broker added.
Oriel also told clients Xcite’s phase 1A at the Bentley oil field is “progressing well”.
Singer Capital Markets had only positive comments for Advanced Computer Software (LON:ASW) this morning, calling it “another year of growth and delivery”.
The broker also highlighted the “resilience” of the healthcare and business-focused company in the face of challenging conditions.
Shares rose four per cent in trading today to 52 pence.
Links:  Full news story
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