Broker tips: Tullow Oil, BT Group, StanChart

Tullow Oil has been downgraded from ‘outperform’ to ‘neutral’ by Exane BNP Paribas, as it signalled the challenges for the oil exploration and production sector are “worse than we thought”.

“A weakening demand environment, US shale’s continued resilience and conventional supply growth through Q4 has caused the supply-demand balance to worsen,” the investment bank said in a note on Friday.

It said OPEC isn’t willing to play ball, so US shale must step up.

However, it did say there are some positives in the sector.

“At USD35/bbl US shale will start to accelerate the supply response in H2.

“Prices should respond from current levels but will remain capped by the deflationary effects across the value chain, we think.”

UBS downgraded BT Group to ‘sell’ from ‘neutral’ with an unchanged 430p price target, saying the risk/reward profile was unattractive.

The bank said risks from increasing competition have been underestimated.

“Our estimates are broadly in line with consensus and assume a continuation of the current benign competitive environment. However, should competition intensify we see downside to 305p.”

UBS said it sees a risk of increasing competition that could lead to long-term EBITDA for BT being £1.25bn per annum lower on a downside scenario.

Investec upgraded Standard Chartered to ‘buy’ from ‘hold’, with the stock trading at a fresh 21st century low of 387p.

The brokerage said it was little surprise StanChart has been almost the worst performing UK bank year-to-date, given the way 2016 has played out so far.

Investec said StanChart’s path back to “normalised” returns remains long and deeply uncertain.

“Aside from its disproportionate ($43.2bn) commodities-related exposure, with adverse implications for revenues and impairments, the blow-out in CDS spreads and yields for AT1 securities has implications for its intended $4bn of further AT1 issuance.”

The brokerage prefers Aldermore and Virgin Money, both of which it rates at ‘buy’.

Investec cut its price target on the stock to 460p from 550p and pointed out that its forecasts for 2015 numbers remain below consensus by a considerable margin.