Broker tips: BP, BAE, Mears

Corporate finance and broking house Hanson Westhouse said third quarter figures from BP were 'solid', despite the oil giant seeing a sharp reduction in adjusted replacement cost profit.Replacement cost profit, excluding non-operating items and fair value accounting effects, was $4.7bn, well ahead of expectations of $3.2bn, Hanson said, with higher production and lower costs mitigating the effects of lower oil and gas prices.'Meanwhile, Refining and Marketing did significantly better than expected despite the collapse in refining margins,' the broker said. As Hanson Westhouse predicted, the third quarter divi was held, and with the cost cutting programme going 'from strength to strength' the broker has reiterated its 'buy' recommendation.Seymour Pierce is another broker banging the drum for BP, saying the results were 'materially better than expected.' Though the broker had hoped the oil company would ratchet up the quarterly dividend from 14 cents to 14.5 cents, the company's stated commitment to maintaining its pay out should ally general concerns about the future of the dividend.Seymour Pierce has a 'buy' recommendation for the stock.Market sentiment has turned decisively against defence stock BAE Systems but Nomura Securities remains a supporter of the stock.Nomura expects BAE's Saudi Arabia business to more than double its annual revenues by 2011 to £3.5bn. Additionally, the group's partnership role on the two largest combat aircraft programmes of the next generation - the F-35 Joint Strike Fighter and the Eurofighter Typhoon - should also benefit the company while the 'through-life support services that represent some 38% of group sales' are not going to go away any time soon.'In terms of valuation, we estimate BAE is trading on 5.5x 2010 EV/EBIT [enterprise value/earnings before interest and tax] versus the European Capital Goods sector on 11.3x. Also, BAE has now de-rated to a 12-month forward P/E [price/earnings] of just 8.3x - a 37% discount to the wider European market,' the broker notes, adding that 'BAE also offers a 5% dividend yield.'Nomura has a price target of 450p for the stock. Mears Group has been upgraded by Numis Securities after the housing repair firm issued a comforting third quarter trading update.The broker has left its full year earnings forecasts unchanged but has upgraded Mears from 'hold' to 'add' after the shares underperformed the FT All Share index by 8% over the last month.'We believe there is scope for the shares to aspire to at least a market rating (i.e. PE [price/earnings ratio] of up to 13x, the basis of our target price) though the journey may be sporadic as the wider investor base has some concerns on the robustness of Social Housing R&M [renovation and maintenance] outsourcing trends and size of spend over an election period,' Numis analyst Francesca Raleigh said.Numis has a price target of 316p for the stock. BP Mears BAE Systems