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The Expert View: Burberry, Whitbread and Barratt
Our daily roundup of analyst commentary on shares, also including Weir and McBride.
by Michelle McGagh on Feb 25, 2016 at 05:00
China and US woes to hit Burberry
Market concerns flagged by Hugo Boss have ignited worries over designer retailer Burberry (BRBY).
Liberum analyst Tom Gadsby retained his ‘sell’ recommendation and target price of 925p on the shares, which fell 4.5% to £11.79 yesterday.
‘Hugo Boss has warned that a challenging market environment in the US and China mean that 2016 earnings are likely to decline by low double digits versus consensus of +1%,’ he said.
‘It is cutting prices in Asia and sees pressure on wholesale in the US. In January we cut our Burberry earnings per share forecasts by 5-7% on the basis of Chinese and US weakness; this update from Boss supports our pessimistic view.
‘Burberry is overly exposed to the Chinese consumer – c.38% of global sales versus c.30% industry average – and the company has 27% of sales in the US. The read across from Boss is unfavourable.’
Barratt not making the most of positive housing market
Housebuilder Barratt Developments (BDEV) is expected to struggle when it comes to increasing capital returns. Shore Capital analyst Robin Hardy retained his ‘hold’ recommendation and ‘fair value’ price of 550p on the shares, which rose 1.5% to 570.4p yesterday.
‘As full-year 2016 is going to be a year of rebalancing the interims were always going to be a harder call and we have not seen a material consensus, so the actual figures may be harder to judge against expectations,’ he said.
‘However, we forecast a profit before tax of £299 million and the outcome was £295 million which is close enough for us to judge the numbers as being in line.’
‘While we do not see any material risk of a reversal at Barratt, we see less ability either to materially increase capital returns or to be able to invest in a more substantial pick-up in the rate of expansion,’ said Hardy.
‘We still believe that Barratt is risker than its peers and the very strong performance by Persimmon shows that more can be wrung from the very favourable market climate than we currently see Barratt achieving.’
McBride upgraded as simplification bears fruit
The simplification strategy at household products maker McBride (MCB), which owns the Oven Pride brand, has led to an upgrade.
Peel Hunt analyst Charles Hall upgraded his recommendation from ‘hold’ to ‘add’ and increased the target price from 160p to 170p. The shares jumped 10% to 170p yesterday.
‘The strategy to simplify the business and to focus on improving margins is bearing fruit with further improvement in H1, with profit before tax increasing from £8.7 million to £13.6 million,’ he said.
‘Like-for-like sales were +0.4%, with growth in continental Europe offsetting a decline in the UK. We are increasing our forecasts by 8% as the benefits of restructuring/purchasing improvements are being delivered and currency is starting to provide a tailwind.’
Hall added that management had ‘made good progress on cultural change to focus on margins rather than sales’.
‘This should make the business more resilient, as well as improving profits and cash. This should more than offset the impact of a competitive environment, which is likely to remain difficult with the major brands competing for shelf space and other private label players likely to look to take share,’ he said.
Weir is not out of the woods
A mixed set of results from engineering company Weir (WEIR) has led to caution from analysts.
Jefferies analyst Andy Douglas reiterated his ‘underperform’ recommendation and target price of 750p on the shares, which were broadly flat at 902p yesterday.
‘Weir’s full-year 2015 results were mixed, in our view, but this was always going to be the case, and the market’s focus has always been on the full-year 2016 outlook and the net debt position,’ he said.
‘Both of these appear worse than we had previously thought, which leads us to reiterate our caution. With the US upstream business currently at break-even and order intake in minerals failing aggressively in Q4 2015 after an uninspiring Q3, the group is not out of the woods yet.’
He added that the outlook remained ‘difficult’. ‘We expect consensus downgrades to come through in oil and gas, and we remain concerned about minerals – despite its consistency – and net debt, despite management’s focus,’ he said.
‘We see nothing to get excited by in these results and plenty to be concerned by and reiterate our “underperform” rating.’
Whitbread upgraded as share price dips
Costa Coffee and Premier Inn owner Whitbread (WTB) has been upgraded as the shares have underperformed.
Numis analyst Wyn Ellis upgraded his recommendation from ‘reduce’ to ‘hold’ but reduced the target price from £44.00 to £40.00. The shares fell 1.1% to £37.44 yesterday.
‘The full-year 2016 pre-close update is due on 3 March. We believe that consensus forecasts for full-year 2017 have softened a little, reflecting tougher conditions for Premier Inn, most notably in London, and softening trading at Costa,’ he said.
‘We have trimmed our full-year 2017 profit before tax forecast marginally from £609 million to £598 million and have cut our price target from £44.00 to £40.00. However, following recent relative market underperformance, and with forward multiples looking more attractive, our recommendation has been changed from “reduce” to “hold”.’
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Look up the shares
- Weir Group PLC (WEIR.L)
- Whitbread PLC (WTB.L)
- Burberry Group PLC (BRBY.L)
- Barratt Developments PLC (BDEV.L)
- McBride PLC (MCB.L)