Broker Highlights: Oil & Retail

Macquarie turned its attention to the oil sector, following the recent oil price rally, which has driven E&P stocks under coverage closer to its estimated fair values and closing the valuation gaps.

On the downward slippery slope were Tullow (LON:TLW), Premier Oil (LON:PMO), Ophir Energy (LON:OPHR), Ithaca Energy (LON:IAE), Faroe Petroleum (LON:FPM) and Cairn Energy (LON:CNE), all of which were downgraded to ‘neutral’ from ‘outperform’.

The broker added that a more positive view would require either the share prices coming back, an uplift to its oil price assumptions or tangible value creating opportunities.

Deutsche Bank also took fresh at the sector and upgraded its recommendation on Nostrum Oil & Gas (LON:NOG) to ‘buy’ from ‘hold’.

The City heavyweight commented: “We think that Nostrum is nearing the end of its execution story and entering a period of delivery of significant production and cash flow growth; we forecast 2016-20 CAGR of 26% and 36%, respectively.”

Ophir remained a ‘buy’ at Deutsche, while Cairn and Tullow were kept at ‘hold’ and Genel remained out of favour as a ‘sell’.

Turning once again to retail, NEXT (LON:NXT) remained the main focus for analysts, with a number of brokers weighing in following the company’s latest trading update.

HSBC and Beaufort Securities both downgraded their respective investment ratings, with HSBC moving to ‘reduce’ from ‘hold’ and Beaufort cutting its call to ‘hold’ from ‘buy’.

HSBC highlighted that, while the fourth quarter was poor, the FY18e outlook and beyond is even more challenged.

Meanwhile, Beaufort said: “We downgraded our recommendation to Hold from Buy, with a price target of 4,300, believing that the stock price is still vulnerable to further sell-offs but the dividend yield will remain supportive.”

JP Morgan Cazenove, Citigroup, Goldman Sachs and Macquarie all repeated ‘neutral’ ratings, while Deutsche Bank, Berenberg and Numis were equally unimpressed and stuck with ‘hold’ calls. Target prices were slashed across the board.

Credit Suisse, however, upgraded its recommendation to ‘hold’ from ‘underperform’, which it says is following the 17 per cent two-day share price fall, but analysts commented that they “remain extremely cautious about the company’s long-term prospects.”

The broker added: “We are increasingly of the view that Next’s problems relate more to the company’s strategy than the overall performance of the UK apparel market.”

Credit Suisse cut its target price to 4,100 pence a share (from 4,600 pence).

At 2:31pm:

(LON:NOG) Nostrum Oil Gas Plc share price was +36.2p at 427.2p

(LON:NXT) Next PLC share price was -15p at 4070p

(LON:OPHR) Ophir Energy share price was -0.12p at 96.13p

(LON:PMO) Premier Oil PLC share price was +0.88p at 78.38p

(LON:TLW) Tullow Oil PLC share price was +2.05p at 328.55p

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