Wednesday July 16, 10:30 AM
Broker tips: International Power, Drax, William Hill, Ladbrokes
LONDON (ShareCast) - Higher power prices and tightening global supplies prompted JP Morgan to start coverage on the power station operator International Power (IPWG.PK - news)
with an 'overweight' rating and a 540p price target. With its diversified geographic and fuel mix, International Power is well placed to expand in Texas, New England, Australia and the UK, the broker said. It said that organic growth would also help the company grow, beyond the current increase in commodity prices. JPM said that International Power's geographic and asset diversification would help it mitigate exposure to the risk of damaging legislation on CO2. "Our target price reflects our preliminary estimate of potential value destruction from new CO2 legislation in the US and Australia," it said. "We expect a strong FY08 outlook at the H1 results on August 7th and the investor conference on September 24th to strengthen confidence in the company's ability to manage credit and carbon risk going forward." JPM said International Power was a better long-term investment than Drax on which it has a 'neutral' rating and an 830p target price. While JPM sees Drax doing well in the short-term, it predicts difficulties longer term as higher fuel costs weigh on the company. It said it would take profits if the stock reaches the target price. Morgan Stanley (SPU - news) has cut its target prices on William Hill (LSE: WMH.L - news) to 485p from 585p and on Ladbrokes (LSE: LAD.L - news) to 325p from 365p to reflect its more conservative assumptions for the bookmakers. It has lowered its earnings assumptions on the companies by 10%. However, the broker thinks the stocks still offer the cheapest valuations in the sector, with attractive dividends. It keeps its 'overweight' rating on William Hill and 'equal-weight' rating on Ladbrokes. There was more woe for HBOS (LSE: HBOS.L - news) and Barclays (LSE: BARC.L - news) after HSBC (LSE: HSBA.L - news) lowered its rating on the banks to 'underweight' and cut their price targets amid further credit crunch worries. It cuts its price target on HBOS, on which it used to have an 'overweight' rating to 840p from 1,250p. Barclays, which it used to rate as 'neutral', sees its target price fall to 580p from 700p.
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