Date: Thursday 14 Jun 2012
Credit Suisse reacted to Cairn Energy's agreed bid for Nautical Petroleum by cutting its target price for the Scottish oil behemoth.
"We maintain our Neutral rating on Cairn Energy and reduce our target price to 362p from 400p to account for the acquisition and current mark-to-market of its Cairn India stake," the broker said.
The Swiss bank says Cairn's balance sheet is strong, at least in theory, with the option of raising around $2.2bn from the sale of its residual stake in Cairn India. "However, the timing of the disposal of the stake is uncertain and this is an important factor if oil prices correct further and equity valuations de-rate. Until we have clarity on the timing of disposal, we expect Cairn to have limited financial flexibility to make further meaningful corporate acquisitions that can unlock value," said Ritesh Gaggar, an oil and gas analyst at Credit Suisse.
According to Merchant Securities, the trading update from luxury fashion firm Mulberry was 'slightly disappointing', which seems an understatement given the market's reaction.
The shares got a right handbagging on Thursday after reporting revenues slightly behind consensus.
"The stock appears expensive on 2013 PER [price/earnings ratio] of 35.0x, against the luxury sector on 16.1x," Merchant Securities analyst Amisha Chohan notes. "We believe that a premium is warranted given the scalable business model and attractive growth opportunities for the medium and long term," the analyst added.
Having said that, the shares have risen by more than a third since the broker named it as one of its picks for 2012, encouraging Merchant Securities to downgrade the stock to a hold.
Of course, given the shares tanked by more than fifth on the day of the trading update, that view may change very quickly.
Although the US market remains slow, the outlook for the current year remains unchanged at WS Atkins, which broker Northland Capital Partners finds reassuring.
"Markets in the UK and US remain difficult whilst Energy, the Middle East and Asia continue to offer growth opportunities. This mirrors what others in sector have been saying over recent weeks," Northland's Andy Hanson notes.
Westhouse Securities, meanwhile, said the design and engineering consultancy's full year figures were in line with expectations, with end-period net funds of £122.6m "probably a touch better than expected."
That said, the commentary around North America is more muted than in recent statements, Westhouse's Michael Donnelly notes, and analysts following the stock are evenly split between holds and buys.
Based on consensus earnings forecasts for the current financial year, the shares trade on a price/earnings (PE) ratio of 8.5, which Donnelly reckons is "some 5% higher than the shares' average rating over the past year, even after giving up some of the circa 25% outperformance versus the market since September."
Peel Hunt is one of those brokers advocating holding on to the shares, rather than topping up.
"With the UK and US having stabilised, improving sentiment in the Middle East and 60% of forecast revenue secured in hand, we have increased confidence in our FY2013E [fiscal 2013] forecasts. However, pension accounting changes in FY2014 could result in a sizeable £10m-15m hit to profits, increasing PE multiples and thereby constraining the share price," Suggests Peel Hunt's Christopher Bamberry.
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