Broker tips: Aggreko, BP, Burberry

Casting its critical eye over the larger UK business services groups, Morgan Stanley advised clients avoid Aggreko, Berendsen, Adecco and Capita, recommending investors own DCC, AA, Experian and Rentokil instead.

Morgan Stanley, which downgraded Aggreko alongside Berendsen to 'underweight' from 'equal weight', said this pair had begun to offer fewer of the attributes analysts that would suggest they will outperform over the long term: "sustainable, high returns on capital, strong cash generation and attractive growth prospects, set within a framework that is aligned with shareholder interests".

Aggreko was viewed as a "challenged business with a strong management team".

While the temporary power group's current year is felt likely to see a recovery in its local rental businesses, "its core issue of not winning enough utility contracts to offset churn, while pricing remains under pressure, should lead the equity story from here", alongside a stuttering new fleet strategy.

Analysts at Barclays re-instated BP as their Top Pick in the European oils sector in anticipation of a "material and sustained" improvement in the oil major's free cash flow.

Key to the above, three project start-ups are imminent and momentum in upstream should only improve going into 2018, analysts Lydia Rainforth, Joshua Stone and Danni Li said.

Downstream, there is scope for the market to be positively surprised and an investor day on 14 June will afford management an opportunity to discuss its own growth ambitions in greater detail, they said.

"We continue to see this as an area where market forecasts are likely to prove too conservative and building credibility through detailed disclosure should also build confidence in the wider group aspirations on cash-flow."

RBC Capital Markets downgraded Burberry to 'underperform' from 'sector perform' and cut the price target to 1,530p from 1,620p.

The Canadian bank said it expects full-year 2018 to be another year of pedestrian sales and earnings growth for Burberry, materially below sector average.

"Low single-digit retail like-for-like growth should not be enough to generate meaningful operating leverage and this should put a lid on margin performance. Potential corporate activity and GBP changes are key risks to our thesis," it said.

RBC downgraded its pre-tax profit forecasts by FY18 and FY19 by 3% and 6%, respectively, putting it 6% below consensus on its new FY19 numbers.