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Friday's London broker comment corner; Morgan Stanley and Deutsche Bank upgrade ratings
Proactive Investors brings you the buzz from the brokers, with a wrap of overnight comment from some of the biggest names in the London square mile.
From London: City heavyweight Morgan Stanley has upgraded FTSE 100 constituent Associated British Foods (LON:ABF) to overweight today from equal-weight, citing the expansion of Primark into Europe and the group's sugar exposure as the reasons why.
Analyst Toby McCullagh said Primark's expansion into Europe was accelerating and he saw the chance to beat medium-term consensus expectations.
The sugar division is a long-term growth business and the price-driven full year 2012 profit boost and likely subsequent full year 2013 dip are both well appreciated, but Morgan Stanley thinks the market underestimates the long-term growth potential of AB Sugar, said the analyst.
The market still under estimates long term growth potential of the stock, he added, targeting a price of 1350 pence - up from 1100 pence.
The investment bank has also moved Tate & Lyle (LON:TATE) to 'equal weight' today from 'overweight', which targets a price of 725 pence.
The same analyst McCullagh said Morgan Stanley remained long term fans of the stock, but moved to equal weight, because of the few clear near-term catalysts.
"Following an impressive 30 per cent outperformance against EU staples since the beginning of 2010, we think Tate needs to deliver concrete evidence of the growth part of its Focus, Fix and Grow strategy for further outperformance," added the analyst.
Deutsche Bank rates Imperial Tobacco (LON:IMT) a 'buy' in a note today with a target price of 2,800 pence.
The German bank says the stock still has a lot of upside potential.
"We believe that Imperial's underlying performance is better than it is generally given credit for and that, on a true 'like-for-like' basis - comparing region with region - it compares well with peers," said analyst Jonathan Fell.
Elsewhere, analysts at Credit Suisse have reduced their estimates for oil giant BP (LON:BP.) by 6 per cent on average over 2012-14 after the fourth quarter result for 2011.
Credit Suisse said that on a 12 month view, it believed BP was undervalued and expected it to re-rate if/when it reached a resolution of Macondo liabilities, likely in the form of a settlement with the DoJ on CWA fines and penalties.
But in the short term, it said headlines concerning the litigation trial beginning on February 27 will be messy, and could weigh negatively on sentiment.
"Production growth will be muted in the near-term, before growth picks up again in 2013-14, helped by 9 project start-ups over the period," said analyst Kim Fustier in the note.
In the smaller caps, broker Singer said that Aureus Mining (LON:AUE) was one of the highest quality exploration/development plays on the UK market. The broker has upped its target price by almost 30 per cent.
The broker updated its valuation after the recent reserve statement, resource upgrade and NPV number for Aureus’ flagship New Liberty mine in Liberia.
Two weeks ago, Aureus reported an initial gold reserve at New Liberty of 873,000 ounces at grades of 3.1 grams per tonne.
The mining reserve currently provides for an eight year mine life with 123,000 ounces being produced annually during the first four years. Cash costs would be around US$632 per ounce.
Aureus is also prime takeover target material, believes Singer, which has a 'buy' stance on the shares.
Elsewhere, research house Edison says the future oil industry in the Falklands could be worth around US$180 billion to the UK in royalties and taxes.
Analysts at Edison Investment Research believe that a successful 2012 drill campaign will be a ‘game changer’ not just for the companies involved but for the Falklands as a whole.
It said drilling in 2010 and 2011 bore fruit for Rockhopper (LON:RKH), with its Sea Lion discovery looking set to be developed and added:
"In 2012, the focus shifts firmly to the Southern Basin explorers where success for Falkland Oil & Gas (LON:FOGL) or Borders & Southern (LON:BOR) will be a game changer for the region. Rockhopper and FOGL offer the most compelling upside for investors. The biggest winner, however, could be the Falklands itself, with a near $180bn potential prize in royalties and tax on the horizon if 2012 drilling proves successful."
Sunrise Resources (LON:SRES) has raised £600,000 through an oversubscribed placing of 50 million new ordinary shares at 1.2 pence each – just below the closing level of its share price yesterday.
The group will use the funds for exploration as well as for working capital purposes, it said in a statement. Broker Northland Capital said the placing highlighted investors’ confidence in Sunrise’s portfolio.
Analyst Dr Ryan Long said Sunrise recently found some high grade intersections at Derryginagh below the historical workings, including 3.6 metres of 89 per cent barite from 200 metres and 2.1 metres of 61 per cent barite from 220 metres.
"Mineralisation is open at depth and along strike. Sunrise is likely to undertake some form of scoping study incorporating the new data shortly. We look forward to further developments."
Meanwhile, Sefton Resources (LON:SER) revealed a positive reserves report for its assets in California, valuing the oil assets at US$137.8 million.
It comprises 3.7 million barrels of proved reserves. The confidence in the resource has improved, it said. Broker Northland said it continued to view the stock as inexpensive, with much of the infrastructure now in place to facilitate growth.
