Broker tips: Unilever, Man Group, Sky

Nomura held onto its 'reduce' rating on Unilever, with its forecasts below consensus and a target price more than quarter lower that the shares' current level.

"Despite a better quarter than we expected, we continue to believe UNA will struggle to get over 3% underlying sales growth in 2015, which is needed to support upside from current valuation levels."

The fast-moving consumer goods (FMCG) behemoth reported better-than-expected second quarter and first-half numbers at both the sales and margin level, with second-quarter underlying sales growth of 2.9% versus consensus 2.6%, with Latin American volume leading.

Nomura said the positive currency impact of 9.6%, versus consensus 8.4%, could suggest circa 2.0% upgrades to full year consensus.

The Japanese bank's full year underlying sale growth forecast of 2.9% is toward the bottom-end of the company guidance of 2-4%, with 2015 EPS estimates at €1.80, roughly 2% below consensus.

While Unilever benefits from better pricing in LatAm and easier comparatives in China, this is being offset by "continued deflation in Europe, less resilience in India, further deterioration in key emerging markets such as Indonesia and Russia and promotional intensity in North America".

Nomura's price target remained at €30.00 (2,120p), some way below the previous close of 2,934p.

Man Group got a boost after RBC Capital Markets upgraded the stock to ‘outperform’ from ‘sector perform’ noting that the shares have dropped 30% since 10 April when they hit a year-to-date high.

During the same period, the group’s flagship AHL fund has declined by 12%, RBC noted. “We believe the share price reaction is overdone and presents an attractive entry point.”

RBC said some discount to the sector valuation is warranted because of Man’s lower visibility over flows, investment performance and performance fee generation, and the higher percentage of Man’s earnings derived from lower quality performance fees than its peers. However, the size of the discount that Man trades at to its peers is too wide.

It said that while the correlation between the company’s share price and AHL performance is too high, in this instance it actually presents a buying opportunity.

Furthermore, RBC reckons Man should generate nearly double the performance fees in the first half of this year that it did in the same period last year and that the first-half results should show strong growth across the board.

The Canadian bank said consensus forecasts are undemanding. “We believe that Bloomberg consensus forecasts will likely be exceeded, and in our opinion with consensus so low Man should soon enter an upgrade cycle, with the first-half results being the catalyst.”

RBC cut its price target on the stock to 185p from 195p as it reduced forecasts but said the new target price yields a 25% implied all-in return, which is one of the highest in its coverage universe.

Macquarie upgraded Sky to ‘outperform’ from ‘neutral’, raised its price target to 1,400p from 900p and named the stock its top pick in the UK.

The bank said that in general across Europe it favours premium operators that are investing in networks and that are indirect beneficiaries of consolidation, and challenger operators with a distinct market segment.

It said that in the UK, BT is at risk from under-investing and is also exposed directly to M&A risks. “As such, we view Sky as the premium UK operator, with pricing power in content and indirect benefits from consolidation. It can also economically discount telecoms to the detriment of BT and others.”

Macquarie cut its stance on BT to ‘underperform’ from ‘neutral’ with an unchanged price target of 375p and on TalkTalk to ‘neutral’ from ‘outperform’, raising the price target to 365p from 350p.

The bank said it was positively biased towards TalkTalk but struggling with current valuations. As for BT, it said its outlook on the stock is negative as it is on the back foot currently facing M&A execution risks, convergence headwinds, competition in the Mobile Virtual Network Operator market, pressure on its fibre business and significant regulatory hurdles.

It kept Vodafone at ‘neutral’ with a 235p price target.