Brokers: Imagination Tech bid chances rise on Chinese stake

Also, BP, Petrofac, Restaurant Group, Centamin, AA...

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Apple unlikely to let Imagination's know-how go east suggests Liberum

Much-touted bid action at Imagination Technologies PLC (LON:IMT) may be a step closer after Tsinghua Holdings took a 3% in the graphics chip designer.

Liberum says Tsinghua is a US $30bn Chinese state-owned fund that has been buying western technology companies.

The group has already acquired Spreadtrum, RDA, HP's server business and tried to buy Micron, Spil and Western Digital, says the broker.

“We presume Apple (owns 8%) would not let Imagination’s technology go to China. This may ignite a sale process.”

Buy with a target price of 200 is the broker’s view on Imagination.

The oil price has recovered by 68% this year so far and UBS says the price now more appropriately reflects the current balances and outlook.

Share prices have also recovered and, among the European companies, imply a price of about price US$56 a barrel.

Based on an average of US$60, UBS has now raised it price target on BP (LON:BP.) to 400p from 375p while Royal Dutch Shell (LON:RDSB price target £19.50) remains one of its top picks.

Citigroup has downgraded gold miner Centamin PLC (LON:CEY) to ‘sell’ from ‘neutral’ due to the recent strength of the share price.

Shares have more than doubled this year and now exceed the broker’s target price. Centamin is a top-quality group, said Citi,  but the market is paying too much for that quality.

UBS has downgraded its view on Frankie & Benny’s owner Restaurant Group (LON:RTN) after the recent profit warning. Like-for-like sales are deteriorating with management yet to have a clear explanation for the weakness, let alone a solution, said the broker.

A downgrade from ‘buy’ to ‘neutral’ reflects the lack of visibility, it adds.

Medtech Smith & Nephew (LON:SN.) has rebalanced away from hip/knee replacement and now has leading positions in higher-growth segments says Jefferies.

Trading at a 17% sector discount, the market has overstated reimbursement risk and undervalued improving organic growth. The broker’s price target rises to 1,375p and the rating is upgraded to 'buy'.

Oil and gas facilities contractor Petrofac  (LON:PFC) remains a ‘buy’ with Liberum (target 1,012p) after the settlement with Total over the troubled Laggan-Tormore gas plant in the Shetland Isles.

“A £70mln single payment could reduce valuation by c.20p per share. But as this is an unusual event and if payment is spread over time, we suspect that the market reaction on Friday took this event into account.”

Jefferies has started coverage on the AA (LON:AA.) with an ‘underperform’ rating and 237p price target. Despite high margins and strong cashflow, deleveraging will occur at an unacceptably slow pace and risks look too high given growth required believes the broker.

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