| CATEGORY: BROKER RECOMMENDATIONS SECTOR: INDUSTRIAL ENGINEERING |
Wed 01 Aug 2012
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LONDON (SHARECAST) - Analysts at Credit Suisse have today raised their target price on Weir to 1850p from 1750p before, while keeping their overweight rating unchanged. That for three reasons:
Firstly, the company´s estimated 2013 earnings per share (EPS) forecasts have declined 17% year-to-date better reflecting pressure pumping weakness with management now actioning self-help initiatives (cutting capex, 25% reduction in SPM operating costs by year end) to offset upstream oil & gas headwinds.
Secondly, as visibility improves and estimated 2013 consensus forecasts become more realistic the stock should start to re-rate towards its peer group earnings multiple from its current discount (especially as EPS growth returns in 2014).
Thirdly, a full 58% of the group´s earnings before interest, taxes and amortizations is generated from a combination of Power & Industrial and Minerals with both posting a book-to-bill greater than 1 in the first half of 2012.
Lastly, Credit Suisse points out that: “Weir is trading at 11.3 times Credit Suisse´s 2012 estimated earnings representing a 4% sector discount. Historically it has traded at a 10-15% premium. While a lack of earnings momentum will prevent this premium being regained for now we see the spread as overly discounting pressure pumping headwinds.”
Analysts at Nomura have today issued positive comments on the guidance offered yesterday by Drax Group; in particular, as regards its biomass conversion details.
In this regard, they explain how Drax stated confidently that it believes it can convert 3 of its 6 units to 100% biomass profitably using conservative assumptions. Furthermore, the company announced a 2mt biomass procurement contract which will provide over 70% of the required biomass for the first unit conversion, scheduled for completion in the first half of 2013. It also announced a loan facility with M&G for GBP 100m, which has a 6-8 year tenor.
Nomura, however, still sees some potential clouds on the horizon.
More specifically, it says that, “while the ROC banding visibility and progress on biomass contracting and financing provides reassurance, we think there is still a lack of visibility around margins on the biomass output, which is likely to persist.”
The above leads its analysts to the following conclusion: “we think a circa 10% discount to a blue sky‖ scenario remains appropriate and we retain our 470p PT and our Neutral rating.”
Yesterday evening analysts at Nomura issued a research note on HSBC in which they retained their buy rating on its stock, arguing that:
“We remain positive on HSBC post results. We saw two principal take-aways from the 1H numbers. Firstly, the group is controlling costs, which suggests positive operating leverage into 2013, with the potential for upgrades to underlying estimates as management deliver on targets; few banks are likely to be able to show this in the current macro-political environment.
“Secondly, although various litigation/compliance issues remain, the charges taken in Q2 were relatively manageable in a group context. HSBC offers a strong balance sheet in capital and funding terms, with exposure to developing markets. Estimated 2013 RoTE is running near 12%, with potential for this to increase. The shares stand at 1.1x tangible book vaue and offer a 5.0% yield.”
AB
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