Broker Spotlight brings some of the more intriguing and topical analyst coverage to centre-stage. The daily column aims to illuminate thoughts and opinions behind the big stories. London is one of the financial capitals of world. The influential and closely followed views of its analysts regularly move markets and split opinion. The Broker Spotlight column arms Proactive readers with the added insight from the often colourful thoughts and headline-grabbing valuations from the City’s analyst community.
Broker Round-up Part 1: BP, Shell, TalkTalk, BT and Virgin Media
After talking about a turnaround in the company’s fortunes at the end of last year, this now looks unlikely if the broker’s estimates are on the money as BP struggles to shake off memories of the Macondo oil spill two years ago.
“Unfortunately, on our estimates, recovery will have taken a somewhat backward step in the first quarter,” the broker said.
“Even at the operating level we do not see much quarter on quarter improvement. This reflects higher costs upstream and the struggle to pass high oil prices through to end consumers downstream.”
The broker expects net income to be down from last quarter and from 2011 when the results are released next Tuesday.
“Higher costs upstream, an inability to pass through higher oil prices to end-consumers downstream and subdued trading conditions in the chemicals business have been the main cause for this underperformance,” Barclays concludes.
The broker has raised its target price accordingly to 2,700 pence from 2,650 pence and said colder weather this quarter helped strong volume recovery.
It believes economic headwinds are still a drag on downstream profits however.
“Shell has underperformed the sector by 3 per cent since the start of the year and so a reasonable set of figures may provide some comfort to investors,” Barclays said.
“However, the $2bn Cove acquisition also answers the question as to how the company will look to use the source of increased free cashflow, supporting our view that there is more upside to the group's spending plans than shareholder returns.”
In telecoms news, broadband and phone provider TalkTalk’s (LON:TALK) YouView internet TV service will have long-term benefits but funding the set-top boxes could see earnings dwindle near-term, according to broker Morgan Stanley.
The former Carphone Warehouse subsidiary, which serves five million customers in the UK under the TalkTalk, AOL Broadband and TalkTalk Business brands, is a partner in the forthcoming TV venture expected to launch in May, which will allow viewers to watch TV through a set-top box connected to the internet.
But Morgan Stanley believes the service poses a margin risk and has therefore reduced its target price to 170 pence from 190 pence and lowered its rating to ‘equal-weight’ from ‘overweight’.
It believes BT (LON:BT.A) will be the biggest winner from YouView as it captures the most value through BTOpenreach and higher fibre wholesale fees, as well as having the resources to absorb box subsidies.
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