UK MARKET TALK ROUNDUP: BROKERS COMMENTS

Broker comments in the UK today. Compiled by Dow Jones Newswires Markets Desk, markets.eu@dowjones.com Contact us in London. +44-20-7842-9464 Markettalk.eu@dowjones.com 0928 GMT [Dow Jones] HSBC (HBC) may be the logical dividend income replacement for BP (BP.LN), given that the market has lost the BP dividend which was due to be paid on June 21, says Oriel Securities. Oriel says investors should consider increasing weightings in HSBC, which clearly meets the broad criteria of a large FTSE 100 index weight and a quarterly payer. Oriel says HSBC pays three equal quarterlies followed by a balancing 4Q payment which reflects "outlook/capital position and forex rates, particularly ensuring British pound investors are not penalized if the pound strengthens." HSBC shares +0.4% at 652p and BP +4.8% at 377p. (ishaq.siddiqi@dowjones.com) 0841 GMT [Dow Jones] UniCredit downgrades BP (BP.LN) to hold from buy and cuts its target price to 420p from 690p to factor in estimate downgrades and the potential costs of the spill. UniCredit notes the setting-up of a $20B escrow account and the cancellation of the company's dividend. It reckons the stock's positive reaction to this news is attributable to a diminishing risk of an asset seizure in the US and lower refinancing needs and the positive reaction is expected to be short-lived. The bank says investor focus will shift to the risk of deferment/cancellation of start-ups, structural increase in costs and capex, falling returns and dividend cuts. It cuts its '10 adjusted EPS estimate by 0.9% to $1.05, '11 EPS cut by 3.5% to $1.08 and '12 EPS cut by 4.1% to $1.17. Shares +3.5% at 372p. (michele.maatouk@dowjones.com) 0810 GMT [Dow Jones] S&P Equity Research cuts BP (BP.LN) price target to 640p from 660p due to uncertainty and potentially higher operational and Gulf of Mexico costs. Still, S&P Equity reckons the company's $20B escrow account will help reassure US claimants and markets. It notes BP's resumption of the '11 dividend will be considered by the board in 4Q'10. "The announcement supports our view that the uncertainty relating to Deepwater Horizon costs will lead to the shares trading below our estimation of their underlying value for some time." Hold rating. Shares +4% at 374p. (michele.maatouk@dowjones.com) 0704 GMT [Dow Jones] Deutsche Bank reduces BP (BP.LN) target price to 480p from 720p, but retains a buy rating. DB says the creation of a $20B claims fund together with clear details of how that fund is to be financed, should go a long way to removing the uncertainties around BP's liquidity. However, "with BP's cash flow and competitive position materially undermined, we target a 20% sector discount on 2011 EPS of circa 65p implying a 480p price target," DB says. It adds that with the relief well not expected to cap Macondo before mid-August, risk remains significant. Shares +0.6% at 362p.(ishaq.siddiqi@dowjones.com) 0649 GMT [Dow Jones] UBS cuts Anglo American (AAL.LN) price target to 3150p from 3250p. Says it has lowered its realized coal price forecasts for Anglo's South African coal assets, given the lag between spot and realized prices. Also says it had been too optimistic on copper earnings, and lowers copper volumes for '10. UBS raises its copper cash costs based on diesel and labor cost pressure and removes the zinc assets from 2H'10. Shares closed Thursday at 2673p. (michele.maatouk@dowjones.com) 0648 GMT [Dow Jones] The structure of BP's (BP.LN) escrow fund and the aggressive capex cut/disposal program will allow BP to manage the cash outflow from the Gulf of Mexico damages without needing to raise new capital, says Goldman Sachs. However, it does not clarify the total size of the damages, as the escrow fund does not represent a cap to BP's liabilities in the area. Goldman says the total damage range remains highly uncertain and includes $34B of liabilities in its valuation. "Although we believe that the risk-reward of BP shares is currently tilted to the upside, we maintain a neutral rating as we continue to see a better risk-reward in our conviction buys, Royal Dutch Shell (RDSA.LN) and Statoil (STL.OS)." Has 580p price target on BP. Shares closed Thursday at 360p. (michele.maatouk@dowjones.com) 0645 GMT [Dow Jones] UBS downgrades Game Group (GMG.LN) to neutral from buy, and cuts its target price to 80p from 120p. Says the company's trading update indicates weak like-for-like sales as expected, but gross margin the main concern, now -100 basis points for FY11 from previous flat guidance suggesting a significant price realignment due to greater competitive pressures. Adds that an improvement in the 2H like-for-like run rate is critical. "We assume a slower like-for-like decline based on two year comparatives being 20% softer," adds UBS. Shares closed at 83p. (ishaq.siddiqi@dowjones.com) 0643 GMT [Dow Jones] UBS raises Tate & Lyle (TATE.LN) price target to 515p from 460p to reflect favorable currency effects and lower debt/pension deficit, following the company's solid FY'10 results. Notes another beat on cash flow. Says year end net debt fell by GBP370M to GBP814M, as the management have reined back capex and focused efforts on reducing working capital. Keeps the stock at neutral. Shares closed Thursday at 497p. (michele.maatouk@dowjones.com) 0635 GMT [Dow Jones] Societe Generale upgrades BP (BP.LN) to buy from hold, after the company agreed to an independently managed claims fund and dividend freeze in response to oil spill. Says this improves visibility on BP's eventual accident-related costs and the market will increasingly start discounting a neutral case rather than the most pessimistic scenario. However, reduces price to 495p from 530p, noting that for the next 12 months, "the share price will likely stay volatile and BP will remain a high risk/high potential reward investment with no guarantee of resumed dividends in 2011." Shares closed at 360p. (ishaq.siddiqi@dowjones.com) 0634 GMT [Dow Jones] UBS raises Heineken (HEIA.AE) target price to EUR39 from EUR37 given the recent weakness of the euro. UBS says the brewer is a beneficiary of the weakness of the euro in terms of translation with some transactional benefit from its US import business. UBS reiterates a neutral rating. Shares closed EUR36.42 Thursday. (annamarij.vandermeulen@dowjones.com) 0633 GMT [Dow Jones] Morgan Stanley downgrades Hikma Pharmaceuticals (HIK.LN) to equalweight from overweight but raises price target to 750p from 700p. The bank says a Middle East and North Africa site visit confirmed fundamentals, but MS says the scope for upgrades is limited and the potential risk of dilution leads to the downgrade. The bank asumes $300M is spent on MENA acquisitions, but the probability of Hikma issuing equity to part-fund any deal has increased. Shares closed Thursday at 675p. (michele.maatouk@dowjones.com) 0627 GMT [Dow Jones] UBS upgrades William Hill (WMH.LN) to buy from neutral. Says that since the end of March 2010, the stock is down 15%, which is unjustified. "Based on our FY'11 estimates the stock is now trading on PE circa 8x and offers a cash flow yield of over to 9%," it says. Adds that post rights issue, "there are no significant balance sheet concerns." Has a 215p target price. Shares closed at 178p. (ishaq.siddiqi@dowjones.com) Contact us in London. +44-20-7842-9288 Markettalk.eu@dowjones.com (END) Dow Jones Newswires June 18, 2010 05:28 ET (09:28 GMT)