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Brokers: UBS upgrades Centrica to 'Buy'

Last updated: 22:12 14 Jun 2016 AEST, First published: 17:12 14 Jun 2016 AEST

Gas hobs on a cooker

Heavyweight investment bank UBS thinks it could be time to revisit Centrica PLC (LON:CAN) as it upgraded its recommendation for the gas and electricity firm from a ‘sell’ rating to a ‘buy’ rating.

The bank also increased its target price for Centrica to 255p from 185p, sparked by improving commodity markets.

“Commodities are recovering; clean spark spreads are up by 40%; load factors for UK gas power stations are up strongly; and an extension of the UK capacity market agreements is likely in our view,” said UBS in its note today.

Elsewhere, FTSE 250-listed Aveva Group PLC (LON:AVV) has been cut to a ‘hold’ recommendation by German bank Berenberg.

The bank says is bases the downgrade “on valuation grounds” with shares in the IT and engineering company “now close to [Berenberg’s] price target.

Although it has cut its rating, Berenberg says that Aveva should “be able to deliver double-digit organic licence growth” if the price of oil continues to inch upwards.

 The banks also notes that Aveva could well be targeted by many “US and European industrial players” looking to increase their software exposure.

Ted Baker PLC (LON:TED) put out a strong trading update on Tuesday for the 19 weeks to June 11 and both Liberum and Cantor Fitzgerald reiterated their ‘buy’ recommendations for the stock.

Liberum noted that Ted has benefitted from the “accelerated move to online across the retail sector which we see as a particular of Ted’s.”

Although Cantor repeated its ‘buy’ rating for Ted Baker, it did lower its price forecast for the clothing brand to 2800p from 3500p. Liberum’s reiterated its price target of 3100p.

Oil giant Royal Dutch Shell PLC (LON:RDSB) had its ‘buy’ rating repeated from broker Liberum, while the broker also increased its target price for the firm by 6p to 1910p.

Liberum said that “Shell is a good yield play in Big Oil and should have the capacity to meet capex, lower debt and retain the dividend.”

Liberum also expects Shell’s recent acquisition, BG Group, “to offer growth opportunities,” while it adds that rising oil prices and lower spending should help with net debt, which currently stands at US$70bln.

Education specialist Pearson PLC (LON:PSON) has struggled of late, after posting a pre-tax loss of £433mln in 2015, amid challenging market conditions.

Broker Liberum has reiterated the group’s ‘sell’ rating, and repeated its recommendation that Pearson is its “top sell in Media.”

Pearson is expected to present several new initiatives at an investor day on Friday (17 June), although the broker remains unconvinced.

“Given that we have been down the road of talking about the “next big thing” with Pearson over the past several years, we are sceptical these will provide the uplifts needed to offset structural declines,” it said in its commentary.

Diamondcorp Plc (LON:DCP) was covered by Broker Shore Capital today, which noted that the average price achieved in the latest run-of-mine (ROM) kimberlite diamonds sale was higher than previous sales.

The latest 1.84kct parcel of ROM kimberlite diamonds from Diamndcorp’s 74%-owned Lace mine in South Africa has been sold, achieving an average of US$189/ct, up from the US$175/ct achieved in April’s tender.

Shore says the revenues generated from these sales are “proving very handy” as it expects operational cash flow is expected to remain “tight” until full production is achieved.

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