Broker tips: Carnival, Petra Diamonds, Melrose Industries, BT, Vodafone, Entertainment One

Taking over coverage of the UK listed stock, Barclays analyst Vicki Stern said: "While we are like to reactivate that bad news that has already affected the stock price, Carnival's challenges in Europe, which could continue into next year, make it difficult for us to justify a rating on par with Royal Caribbean Cruises and Norwegian Cruise Line Holdings, which face stronger growth catalysts.

"With significantly lower yield growth expectations for 2019 and potentially 2020 versus that of Royal Caribbean Cruises and Norwegian Cruise Line Holdings, we believe that Carnival will continue to underperform."

As a consequence, Barclays has downgraded the stock to 'equal weight' from 'overweight', and reduced its price target to 4,330p.

Royal Bank of Canada slashed its target price on shares of Petra Diamonds on the back of its forecasts for continued pricing pressures on the small end of the diamond market and the miner's "high" financial leverage, together with a switch to a new methodology.

Analysts at RBC took an axe to their target price, lowering it from 4,000p to 2,300p, due in part to a higher net asset value estimate of 0.9 versus 0.8 beforehand - to reflect higher sunk costs - and because it is now incorporated to 4.5 times estimate of the company's enterprise value-to-earnings before interest, taxes, depreciation and amortization, which was in-line with its industry peers.

Over the past four years, demand for diamonds had softened and reports of lab-grown diamonds had weighed on sentiment, they explained, as they cut their near-term diamond price forecasts by 4%, although they remained "constructive from later in calendar 2020 as falling mine production and steady demand growth should move prices higher. "

In their view, synthetics had been "overhyped" and kept their recommendation for Petra Diamonds' shares at 'sector perform'.

In the meantime their focus would be on development and ramp-up of the culling at the Cullinan mine, telling clients that it was "critical" to production and boosting the chance of recovering "special" stones.

RBC still saw a recovery at both Cullinan and Finch towards its long-term averages but cuts its estimate for Petra Diamond's 2020 EBITDA by 29% to $ 186m, putting it 21% below Reuters compiled consensus.

Citi announced coverage of Melrose Industries with a 'buy' rating and 220p price target on Monday, saying it "uniquely" offers investors an opportunity to invest in a FTSE 100 company with "a consistent track record as an industrials turnaround specialist".

The bank said it sees 300 basis points group margin improvement in 2018-22 as the legacy of margin underperformance versus peers at both GKN Automotive and GKN Aerospace offers management "significant self-help upside" opportunity.

"We see margin improvement contributing 52% of the upside down to our target price, with sales growth contributing only 16%," it said.

"Indeed as a turnaround specialist, Melrose's business model is less reliant on 'the cycle' and top-line growth for delivering returns, making it particularly appealing for capital goods investors suffering from end of cycle fears / 'endcyclitis'."

Citi added that in its coverage universe, alignment of management and shareholders' interests, as well as transparency/scrutiny of targets, is greatest at Melrose.

Deutsche Bank has cut its rating on British Telecom, urging investors to sell the blue-chip group.

The UK has long lagged the rest of Europe in providing reliable, ultrafast broadband connections to all homes, and BT - which operates the network as well as providing telecoms services - has come under pressure to do more.

In May, new chief executive Philip Jansen said BT would roll out full-fiber broadband to 15m homes by the mid-2020s.

However, Deutsche Bank warned that it would see capital expenditure rise, which in turn could threaten BT's ongoing earnings recovery.

Analyst Robert Grindle said: "We have BT as one of the least attractive European telcos, given low levels of fiber deployment and the less advanced state of convergence competition in the UK versus other markets."

Grindle cut the bank's rating on the stock from 'hold' to 'sell' and reduced the price target to 175p from 217p.

Elsewhere, Deutsche Bank maintained its 'buy' rating for Vodafone, despite reducing its price target, arguing that headwinds are starting to ease for the mobile phone giant.

The bank conceded that Vodafone's shares had performed poorly over the last year, thanks to "multiple compounding negatives which undermined investor confidence and eventually led to a cut in the group's dividend".

But it added: "It is worth remembering Vodafone's leverage increase is predominantly self-inflicted by the accretive cash-based acquisition of Liberty Global assets at a time in which interest rates were rising.

"Further, Vodafone did not miss its full-year EBITDA or free cash flow expectations, despite lower top-line growth, and guided ahead for full-year 2020 free cash flow."

Deutsche Bank cut its price target for the blue chip to 240p from a previous target of 250p, "due to lower estimates, offset by a small forex effect", but maintained its 'buy' rating.

Analysts at Berenberg initiated coverage on shares of Canadian distribution and production firm Entertainment One at 'buy' with a 475p target price on Monday, noting that although the rise of subscription services such as Netflix and Spotify had disrupted some of its traditional revenue lines, revenue from structural growth activities now outweighed income from the disrupted segments.

Berenberg predicts that even excluding Apple, Google and Facebook , content spending in the US will be over $110bn in 2019, up from $95bn in 2018, and while the analysts did not venture any guess as to who will win the subscription video on demand wars, they did notice that all parties involved in the fight will need premium content to capture consumers' attention and wallets - a demand it believes Entertainment One was "well positioned" to serve.

The German broker credited Entertainment One's family and brands division for "bringing home the bacon" for the group, with Peppa Pig and PJ Masks being two of the three biggest pre-school brands globally.

"We believe the company has the know-how to develop and globalize successful children's brands, with eight more brands in development, further monetization opportunities in China and the rest of the world, and Peppa Pig theme parks, we believe there is a lot more upside to come From these opportunities alone, we think there is an additional GBp212 per share upside in our blue-sky scenario, "said Berenberg.

Berenberg also noted that while investors had focused on the decline in low-margin cinema and home entertainment activities within Entertainment One's film and TV division, its analysts still believe "the outlook is rosy".