Broker tips: Dairy Crest, Unilever, ICAP

Credit Suisse lowered its rating for Dairy Crest to ‘neutral’ from ‘outperform’ following a strong run in the company’s share price.

Analyst Charlie Mills said in a note Credit Suisse had raised its price target to 620p from 580p, after a 17% increase in the share price, triggered by a regulatory update.

On Monday the Competition and Markets Authority said it was likely to accept Muller’s proposed remedies to ensure competition after its proposed takeover of Dairy Crest’s milk business.

The CMA invited submissions from interest parties on its proposal before accepting the deal .

Credit Suisse said the deal now looks inevitable because the regulator was already well aware of third party views of the merger.

“It looks inevitable that this deal will go through and that come November/December Dairy Crest will be a standalone Cheese & Spreads business,” Mills said in a note.

Unilever was the worst performer on the FTSE 100 on Wednesday morning after Goldman Sachs downgraded the stock to ‘sell’ from ‘neutral’ and cut its price target to 2,560p from 2,820p.

Goldman said the consumer goods company was negatively positioned with respect to the changes in the retail environment as the e-commerce channel grows.

It expects the food and homecare divisions, which made up around 45% of 2014 sales, to come under pressure from higher proliferation in stock-keeping units.

In addition, the bank noted that around 60% of Unilever’s sales come from emerging markets, for which it expects structurally lower growth versus prior years and more competition in mass-market categories from local companies.

“While we believe the recent investment in prestige beauty brands is a positive move into an attractive market, this still represents less than 1% of sales,” it said.

Unilever is due to report third-quarter earnings on 15 October and GS said any comments on slower growth in the struggling spreads division and further slowing in emerging markets would be taken negatively by investors.

Risks to the bank’s view and price target include better-than-expected adaption to the e-commerce channel, faster-than-expected economic growth in emerging markets, and further disposals within the food division or larger acquisitions within prestige beauty.

ICAP shares slumped after Morgan Stanley downgraded the stock to ‘underweight’ from ‘equalweight’, although it raised the price target to 460p from 382p.

MS said its analysis suggested challenges for inter-dealer brokers to sustain mid-teens earnings per share growth and revealed around 5 to 10% downside risks to consensus estimates.

As far as ICAP is concerned, the bank said optimism around EBS Direct, US tapering and M&A/corporate restructuring appears misplaced.

“Our analysis suggests the market over-estimates the opportunity from EBS Direct, with competition intensifying, services becoming commoditised and prices likely to fall further,” said MS.

The bank also said the stock’s rating appears rich, trading at a premium of around 20% versus its long-term historical average and the risk/reward is skewed to the downside.

Morgan Stanley downgraded its earnings per share forecasts, saying it expects ongoing structural challenges for voice broking revenues, whilst the disposal and closure of other business lines, such as shipping , first brokers and commodities, offsets its high single-digit revenue growth across electronic and post trade.

It cut its EPS estimate for 2015 to 30.1p from 32.1p and for 2016 to 31.6p from 34.8p.