Broker tips: Sky, Sports Direct, Aggreko

(ShareCast News) - UBS reiterated a 'buy' rating on Sky and raised the target price to 1,370p from 1,310p on Thursday after Rupert Murdoch proposed a deal to a full takeover of the broadcaster.Murdoch's Twenty-First Century Fox on Friday announced a preliminary deal to buy the rest of the shares in Sky it does not already own for $14bn.The deal comes five years after a phone hacking scandal at Murdoch's now defunct tabloid newspaper News of the World disrupted his previous attempt to buy Sky.UBS said it believes Sky shareholders could push for a higher offer price on strong second quarter results in January 2017 showing improvement in UK key performance indicators and satisfactory outcomes for the Champions League and Series A rights auctions."While the independent board of directors for Sky has agreed to the offer price of 1075p, the board can change its recommendation at any time up until the formal offer documents for the extraordinary general meeting are published, typically after regulatory approval for the deal is granted," UBS analyst Polo Tang said."Our view is that EPS for Sky is about to inflect after a period of heavy investment and that EPS should reach more than 100p by 2020."UBS raised its target price to factor in the upside from Sky's recent launch into mobile. The bank raised its longer-term earnings before interest, tax and amortisation estimates by 2-3%."Near term, there is upfront investment from the launch of mobile but the bulk of these costs was already implicitly embedded into UBS estimates/consensus forecasts," Tang said."At a 1075p offer price, Sky trades on 16.3x calendarised EPS for 2017E falling to 13.4x in 2018 and 11.1x in 2019." Canaccord Genuity has maintained its rating on Sports Direct at 'sell' but has lowered its price target to 160p from 231p due to the company's expensive expansion plans.Sports Direct is planning to change its strategy from being a heavily discounting third-party branded product towards becoming the "Selfridges of sports retail" through freehold flagship stores."The cost of implementing this strategy will be high and we have adjusted our capex, depreciation and interest cost forecasts to reflect this," said the bank.According to the company, it intends to spend potentially in excess of £300m of its own resources and a bank facility of £788m to invest on property asset acquisitions over the next two to four years.Guidance for the full year 2017 capital expenditure is now £480m and depreciation and amortisation is expected to be £130m, up from the bankers' previous valuations of £93m and £130m.The broker's underlying earnings before interest, tax ,depreciation and amortisation (EBITDA) forecasts have not changed materially, but the increase in depreciation guidance, as well as higher interest costs drives a 10-18% reduction in full year 2017-2019 profit before tax estimates."The net result is that our price target falls from 231p to 160p. We are taking management's guidance on costs at face value without assuming any resultant upside to trading. This may be harsh, but given the turmoil in the business to date and early stages of the new strategy it is hard to be more optimistic." Aggreko got a boost on Thursday as Deutsche Bank upped its stance on the temporary power provider to 'buy' from 'hold' and lifted the price target to 1,000p from 780p noting the company is approaching the end of four years of negative earnings momentum.The bank estimated that between 2012 and 2016, Aggreko's trading profit will have declined by almost 40%, mostly driven by the roll-off of certain one-off contracts, pricing pressure and a drag from oil and gas."While risks still remain for 2017E, mainly with the well flagged contract renewals in Argentina, we expect an inflection in earnings momentum in 2018E. We see upside with a return to earnings growth," DB said.It sees the company returning to earnings growth in 2018 thanks to improved oil and gas activity, the 1GW of order intake in Power Solutions year-to-date and a lower drag from contract re-pricing, resulting in some margin stability.Deutsche said its 2016 pre-tax profit forecast of £220m is in line with management's guidance of £225m and 2% ahead of Factset consensus of £123m.