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Broker tips: Capital & Counties, Taylor Wimpey, Tullow Oil

Thu 14 November 2019 14:57 | A A A

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(Sharecast News) - Peel Hunt upgraded its stance on shares of Capital & Counties to 'buy' from 'add' on Thursday, lifting the price target to 300p from 280p as it pointed to "significant upside" from a double disposal.

The broker noted that a credible buyer for Earls Court appears to have emerged in the form of Delancey/APG and said that together with an easing of UK political uncertainty, "a transaction now feels more likely than not".

"Our attention, and enthusiasm, turns to the £2.6bn Covent Garden estate, which in our view epitomises a trophy asset," it said.

In a clean standalone vehicle, it could prove highly attractive to global capital pools and offer a once in a generation opportunity to gain exposure to a quasi 'landed estate', it said.

"A small premium for Covent Garden would more than offset a material discount at Earls Court, with our analysis suggesting upside of between 30% and 45% to the current share price."

Analysts at Berenberg lowered their target price on shares of British construction firm Taylor Wimpey slightly, from 200p to 190p, noting that the better volumes seen year-to-date appeared to have come at the expense of margins.

Berenberg said strong sales rates and better-than-anticipated volumes at Taylor Wimpey should deliver 2019 numbers in line with current expectations - which it described as a "solid achievement" given the company's slightly lighter first-half performance.

However, the German broker cautioned that better volumes had come at the expense of margins and that it expects further compression in 2020.

Despite this, Berenberg said the group's strong landbank, excellent cash generation and £500.0m net cash position should ensure that its 11% dividend yield was maintained.

"Outside of these short-term uncertainties, the medium-term strategy remains intact," said Berenberg.

The analysts also highlighted how Taylor Wimpey's longer term objective for margins of 21.0-22.0% was maintained and ow the group was scheduled to return roughly 25% of its market capitalisation over the next two years.

Berenberg stood by its 'buy' rating on Taylor Wimpey.

Analysts at Canaccord Genuity lowered their rating on Tullow Oil from 'buy' to 'speculative buy' on Thursday following a disappointing trading update from the firm in the previous session.

Canaccord said lower-than-expected Ghana production, leading to a 2019 production guidance downgrade, crude oil analysis that showed surprisingly heavy and sour oil in the firm's two Guyana discoveries, continued stasis in its Uganda farm-out/development and slowing net debt reduction due to lower production and oil prices all combined to make yesterday's trading update "a significant disappointment".

"These all present considerable and varied head-scratching challenges for the company at a time when E&Ps face a range of external investment headwinds," said Canaccord, which also dropped its price target on the company from 270p to 220p.

The Canadian broker said Guyana was the biggest surprise of the update, with the analysis of crude from the Jethro and Joe discoveries in the Orinduik block showing the oil in both was heavy and had a relatively high sulphur content.

"This heavy sour crude is quite different to Exxon's light sweet crude in the Liza field, and raises the risks about future exploration on the licence and its commercial value," said the analysts.

Nevertheless, Canaccord acknowledged that Tullow did find movable oil in two different age plays and generally good quality/thick sandstone reservoirs.

"That is still a good start to the exploration of the area, though clearly not the home run that it appeared immediately post drilling."

In addition to substantially increasing the risks associated with Tullow's Guyana operations, Canaccord also projected lower but flatter production in Ghana and slowed its development timetable for the group's Kenyan development project.

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