The Expert View: Tullow Oil, Balfour Beatty and TUI Travel

We’ve rounded up some of the best comment from analysts to give you their views on Tullow Oil, Balfour Beatty, TUI Travel, Morgan Crucible and WH Smith.

Key stats
Market capitalisation	£13,834m
No. of shares out	906m
No. of shares floating	844m
No. of common shareholders	not stated
No. of employees	1548
Trading volume (10 day avg.)	2m
Turnover	1,426m USD
Profit before tax	402m USD
Earnings per share	0.45 USD
Cashflow per share	0.84 USD
Cash per share	0.21 USD

*Correct as at 8 May 2012

Credit Suisse lifts Tullow Oil's target price

Thomas Adolff, analyst at Credit Suisse, has increased his target price for Tullow Oil (TLW.L) after the explorer announced that it has hit fresh reserves in Kenya.

Tullow's Ngamia-1 exploration well, which is a 50:50 joint venture with Toronto-listed Africa Oil, has now been drilled to 1,515 metres and has hit more than 100 metres of net oil pay - more than twice the amount found in any of the group's other East African wells, Adolff said. Ngamia is the first structure that Tullow is testing as part of a multi-well programme in Kenya and Ethiopia.

'We also welcome TLW’s intention to now add more rig capacity to accelerate drilling activity in the region, spearheaded by its former Ugandan exploration team,' the analyst said. 'It is also relevant to say there is infrastructure synergy potential in South Sudan/Uganda/Ethiopia/Kenya.'

The good news in Kenya will come as a relief to investors after the shares dipped last week on disappointing news from the company's Teak-4A well offshore Ghana.

Adolff reiterated his 'outperform' rating on the shares, and has increased his target price from £18.18 to £18.41.

Shares in the group closed at £15.17 on Tuesday, up 48.38p or 3.29%.

Key stats
Market capitalisation	£1,865m
No. of shares out	687m
No. of shares floating	682m
No. of common shareholders	not stated
No. of employees	50301
Trading volume (10 day avg.)	2m
Turnover	£9,494m
Profit before tax	£182m
Earnings per share	26.61p
Cashflow per share	46.49p
Cash per share	86.61p

*Correct as at 8 May 2012

Investec ups target price for Balfour Beatty, sticks with 'sell'

Andrew Gibb, analyst at Investec Securities, has increased his target price for construction and materials group Balfour Beatty (BBY.L) but reiterated his 'sell' recommendation as he believes the underlying business is in decline.

The analyst said that were it not for increasing PFI disposals, a fall in finance costs on pensions and an ongoing cost-reduction programme his full-year forecast would be significantly below 2011's figure. 'This illustrates the current challenges in its end markets, and there is little sign of improvement in the near term,' he added.

The 7.8x price-to-earnings ratio (based on estimated 2012 figures) and 5.3% yield may appear attractive, he said, but with 80% of business based in the UK and the US it's hard to see growth picking up anytime soon. He further noted that the stock has underperformed the FTSE All Share in five of the past eight years. Although the firm reported an impressive £340 million of net cash at the end of 2011, Gibb noted that this was down 34% on 2010.

'Fundamentally, the underlying business is in retreat (and has been for some time),' Gibb concluded.

Shares in the group, for which Gibb has a target price of 210p, up from 185p previously, closed at 270.47p on Tuesday, up 1.87p or 0.70%.

Key stats
Market capitalisation	£2,119m
No. of shares out	1,118m
No. of shares floating	654m
No. of common shareholders	not stated
No. of employees	53247
Trading volume (10 day avg.)	2m
Turnover	£14,687m
Profit before tax	£89m
Earnings per share	7.96p
Cashflow per share	29.07p
Cash per share	82.65p

*Correct as at 8 May 2012

Peel Hunt upgrades TUI Travel

Nick Batram, analyst at Peel Hunt, has upgraded tourism firm TUI Travel (TT.L) from 'sell' to 'hold' following interim results that came in ahead of his expectations.

In the six months ended 31 March TUI Travel lost £317 million on an underlying basis, £10 million less than Batram had expected. The loss was still up £10 million on last year. The UK put in a strong performance, the analyst said, accounting for £125 million of the loss, down from £173 million in the year-ago period.

'TUI is clearly benefiting from the woes at Thomas Cook, but the focus on differentiated product is clearing a major positive as well,' Batram said. However, he cautioned that the tough economic outlook means it's too early to turn fully positive on the shares.

The group's own trading statement echoed this sentiment, saying 'Given the challenging economic environment, we remain cautious, however, overall trading performance continues to be in line with the Board's expectations.'

Shares in the group, for which Batram has a target price of 199p, up from 176p previously, closed at 187.60p on Tuesday, down 2.20p or 1.16%.

Key stats
Market capitalisation	£815m
No. of shares out	278m
No. of shares floating	274m
No. of common shareholders	not stated
No. of employees	10028
Trading volume (10 day avg.)	1m
Turnover	£1,101m
Profit before tax	£73m
Earnings per share	25.67p
Cashflow per share	41.56p
Cash per share	30.53p

*Correct as at 8 May 2012

Oriel backs Morgan Crucible

Harry Philips, analyst at Oriel Securities, has reiterated his 'buy' recommendation on industrial materials specialist Morgan Crucible (MGCR.L) following what he called a 'very solid' trading statement.

In the first four months of the year group revenues rose about 4% in constant currency terms, running ahead of Philips' prediction for a 3% rise over the year as a whole. The analyst said the statement confirms progress in terms of margins, with the ceramics division reportedly becoming more profitable.

'The stock is trading at an unjustified 30% discount to correlation,' Philips said. 'We believe that Morgan is on track to deliver this profound structural change in its sustainable margin profile led by Superwool and on this basis Morgan continues to be a core buy with a price target of 460p.' Superwool is an industrial insulant that can be used at high temperatures.

Shares in the group closed at 291.64p on Tuesday, down 19.36p or 6.22%.

Key stats
Market capitalisation	£698m
No. of shares out	133m
No. of shares floating	126m
No. of common shareholders	not stated
No. of employees	16273
Trading volume (10 day avg.)	0m
Turnover	£1,273m
Profit before tax	£73m
Earnings per share	51.41p
Cashflow per share	76.76p
Cash per share	29.50p

*Correct as at 8 May 2012

Espirito Santo says 'buy' WH Smith

Analysts at Espirito Santo have reiterated their 'buy' recommendation on high-street retailer WH Smith (SMWH.L) following a trip last Friday to the group's White City store to meet the management.

Profits from the company's high-street operations have risen from £14 million in 2004 to £52 million in 2011, the analysts noted. This is despite like-for-like sales falling in every year over the period. 'Over the same period, the gross margin hasincreased by a remarkable 15.4 percentage points and operating costs have fallen by 8%,' the analysts said.

'The trading environment remains difficult and some of WH Smith's core categories such as books and news/magazines face significant challenges,' they noted. However, the trip to White City left them optimistic about the group's attention to detail and ability to reduce costs. 'We came away impressed by what we saw and confident that management can continue to deliver,' they said.

Espirito Santo acts as a market maker for WH Smith.

Shares in the group closed at 511.63p on Tuesday, down 6.37p or 1.23%.