| CATEGORY: BROKER RECOMMENDATIONS SECTOR: OIL EQUIPMENT, SERVICES & DISTRIBUTION |
Broker tips: Petrofac, Inmarsat, Shanks |
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Wed 10 Mar 2010
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LONDON (SHARECAST) - Royal Bank of Scotland (RBS) has mulled over the record numbers announced by oil and gas plant provider Petrofac and determined that they warrant an upgrade in the broker’s rating of the stock.
RBS has upgraded the stock from ‘hold’ to ‘buy’ and beefed up its price target to 1230p from 1025p after increasing its net profit forecasts for 2010 by 8%.
After stripping out the company’s UK Continental Shelf assets, which are being hived off into a joint venture with Swedish company Lundin Petroleum, RBS expects Petrofac to post a net profit of $378m in 2010.
The trading environment in the engineering and construction (E&C) market remains competitive, with Korean operators maintaining ‘aggressive order intake targets for 2010’ but Petrofac, with its strong order backlog, can ‘be selective and continue to secure work at attractive margins,’ RBS believes.
Nomura has raised its 2011-2012 earnings forecasts for Inmarsat after the satellite operator’s strong fourth quarter results, though the upgrade was largely to reflect the strengthening of the US dollar against the pound.
The broker has raised its target price for the stock from 700p to 875p, based on a discounted cash flow sum of the parts valuation, and reiterated its ‘buy’ recommendation.
‘We remain bullish on Inmarsat’s medium to long-term growth prospects driven by: i) continued strong uptake of [the] BGAN [satellite] across all three verticals, ii) the launch of handheld service this summer, and iii) in-flight mobile connectivity,’ the broker said.
‘We do also, based on the last few quarters’ performance, now feel more reassured about the company’s resilience to the economic downturn in general and its impact on the shipping industry in particular,’ the Nomura research note added.
Goldman Sachs raised its rating on Shanks to ‘buy’ from ‘neutral’ after the waste group’s shares fell following its abandonment of talks with private equity group Carlyle about a possible offer.
The broker notes that Shanks trades at 8.9 times earnings, a significant discount to both the wider utilities sector, which trades at 12.3 times earnings, and its historical multiples of about 11.4 times earnings.
‘Shanks is among the most economically exposed stocks in the utilities sector, as its business is 100% waste, of which around 85% is non-municipal (and so more sensitive to industrial production cycles),’ the broker says.
‘Our economists expect a rebound in industrial activity in Shanks’ key markets (Benelux and the UK), which should drive strong earnings growth at the company. We would also not rule out the possibility of further M&A activity in the next 12 months.’
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