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Broker spotlight - Cairn, G4S, BG, Thomas Cook ...

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It was downgrades o’clock among the City scribes today, possibly reflecting the hammering for equity markets yesterday.

Cairn Energy (LON:CNE) took a battering as it revealed its tax row in India had deteriorated to the point where it has issued a Notice of Dispute.

A draft assessment order from the Indian Income Tax Department for 2006/7 now amounts to US$1.6bn plus any applicable interest and penalties. Jeffries said the situation is a new and material escalation of the tax dispute. 

The parties are now required to enter a 3-6 month negotiation period to seek a resolution. 

Jefferies reduced its price target to 172p (from 220p)  and lowered its rating to ‘hold’ from ‘buy’.

UBS kept its 'neutral' stance as it pointed out that the claim is only enforceable on Cairn’s Indian holding company, which implies the loss to Cairn Energy should be capped at the residual 10% stake (worth US$675m) and not the US$1.6bn.

Jefferies also downgraded its rating on security group G4S (LON:GFS) to ‘hold’ from ‘buy’. 

Latest earnings were exactly in line with forecast and marginally ahead of consensus, but £10mln losses related to a collection of now non-core small units were moved to exceptionals, without which earnings would have been 3% below consensus. 

Also in the downgrade front, Credit Suisse has lowered its target price for BG Group (LON:BG.) to 815p due to the uncertainty in Brazil.

Citigroup has downgraded travel operator Thomas Cook (LON:TCG) to ‘hold’ despite a higher target price after the recent 5% share purchase by Chinese firm Fosun.

The US broker has lowered its earnings forecasts for the next three years by 18% 13% and 9%, though it said the tie-up with Fosun will provide a boost.

“The company’s cost/new product initiatives do point to strong EPS growth (c40%) in FY16E but the industry is unpredictable,” it said.

The broker’s new target price is 150p (from 140p) but the rating is now ‘neutral’ from ‘buy’ to reflect the re-rating of the peer group.

City firm Panmure  repeated a 'buy' call for  life science firm Horizon Discovery (LON:HZD) after the news it is providing genomic reference materials to support phase two of Cancer Research UK's programmes.

Panmure has a target price of 247p - a fair distance from the current price of 208.5p.

"Today’s announcement is yet another illustration of Horizon’s role in enabling progress towards the development of personalised medicine," said analyst Dr Mike Mitchell.

Mark Henderson, analyst at Westhouse, repeated a ‘buy’ recommendation for Eland Oil & Gas (LON:ELA), and with a 95p price target the broker implies some 100% upside to the current price of 47.5p.

“The low cost nature of Nigerian production means that operations are resilient even at current low oil prices and we look to increasing production and cash flows to boost the share price in the medium-term,” Henderson said in a note.

Northland rates Stratex (LON:STI) as a 'buy' but has reduced the target to 6.4p from 7.3p. The change comes as Stratex released a feasibilty study for the Muratdere copper-moly-gold property in Turkey.

The broker updated its valuation of Muratdere based on today's study, arriving at a valuation of Stratex’s 30% interest at US$3.7mln, down from US$9.3mln.

"The FY14 results were largely in line with our expectation but net cash was slightly lower than we expected, partly due to higher exploration costs, also reducing our price target," it said.

"We have made other negative adjustments for Stratex’s interests in Tembo Gold Corporation (12.9%) and Goldstone Resources (25.1%) based on the current market valuation of these companies. Further advancement of the Dalafin project leads us to increase our valuation of the West African portfolio to $4.4m (up from US$3.6m)," the broker said.

Analyst Dr Ryan Long notes the broker's price target is still 209% upside on the current share price and says he continues to believe that Stratex is highly undervalued at these levels.


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