Broker tips: Royal Mail, South32, Vedanta, Soco, Housebuilders

After a mixed bag of results from Royal Mail last week, Cantor Fizgerald has upgraded the shares to 'hold' from its previous 'sell' recommendation.

Encouraged by the group's healthy uplift in operating margin, Cantor’s analyst Robin Byde lifted his target price on the shares to 550p from 440p, saying the shares were trading at a "justified" 30% discount to the sector.

Jefferies initiated coverage of South32 with a ‘buy’ rating and 145p price target. “Our analysis indicates that the company’s strong balance sheet and free cash flow justify a ‘buy’ rating despite its lack of organic growth,” said Jefferies.

UBS has kicked off coverage of Vedanta Resources with a 'buy' rating, saying that the miner has "growth optionality and re-rating potential".

The positive view is due to the miner's favourable commodity mix (with oil, zinc and copper accounting for nearly four-fifths of operating profits), sector-leading production growth, potentially positive regulatory catalysts (backdrop is improving in India) and the likelihood of a near-term debt refinancing.

The significant downside risk facing oil companies has now passed, according to JPMorgan Cazenove, though exploration and production (E&P) businesses still face a "bumpy path".

In its review of the European E&P sector, the broker has downgraded Soco International from 'neutral' to 'underweight', causing shares in the UK outfit to drop. JPMorgan said Soco's shares have rallied strongly in recent months and are now trading above its new core net asset value estimate "hence risk appears skewed to the downside".

Citigroup has lifted its target price for TUI AG from 1,150p to 1,250p but kept a 'neutral' recommendation, saying it sees no cash returns in the near term at the travel operator.

Citi said management is "doing a good job at carving out EBITA growth (>10% per annum) in a tough market". However, it said this growth has come at the expense of higher capital expenditure and restructuring charges, which reduce free cash flow and lift debt.

Deutsche Bank has named Taylor Wimpey, Barratt Developments and Bovis Homes as its top picks in the UK housebuilding sector, highlighting the attractive dividend yields across the industry.

"At this time, we see the marginal investor in the sector as the yield funds, and it is interest from these investors that we believe is likely to provide a floor in the share prices for the sector, particularly for the FTSE100 participants," it said. The bank hiked target prices for a host of stocks across the sector.