The Expert View: Debenhams, RBS and Paragon

Our daily round-up of analyst recommendations and commentary, featuring Debenhams, RBS, Paragon, Moss Bros and Smiths Group.

Key stats
Market capitalisation	£1,446m
No. of shares out	1,263m
No. of shares floating	1,145m
No. of common shareholders	not stated
No. of employees	8355
Trading volume (10 day avg.)	4m
Turnover	£2,230m
Profit before tax	£125m
Earnings per share	9.77p
Cashflow per share	16.92p
Cash per share	3.48p

*Correct as at 14 Dec 2012

JP Morgan lifts target price for Debenhams

Georgina Johanan, analyst at JP Morgan, has increased her target price for Debenhams (DEB.L) based on potential for growth in the company's online operation.

'Debenhams has made strong progress in developing its omni-channel offering in recent years but, in our opinion, remains behind best in class,' she said.

A switch to its Peterborough warehouse for online clothes deliveries in spring 2013 should allow Debenhams to add a next-day delivery option, Johanan said, bringing it into line with other leading sites.

'Despite having outperformed by 63% this year the shares continue to trade at a discount to the sector of 25%,' she said. 'This is no longer justified in our view given the structural shift in UK retail and the significantly reduced debt burden. We raise our target price to 144p.'

Shares in the group closed at 114.7p on Friday, up 0.5p or 0.4%.

Key stats
Market capitalisation	£34,263m
No. of shares out	11,336m
No. of shares floating	7,128m
No. of common shareholders	not stated
No. of employees	142800
Trading volume (10 day avg.)	8m
Turnover	£21,410m
Profit before tax	£-2,044m
Earnings per share	-18.89p
Cashflow per share	-1.30p
Cash per share	719.13p

*Correct as at 14 Dec 2012

Investec says 'sell' RBS

Ian Gordon, analyst at Investec, has reiterated his 'sell' recommendation on Royal Bank of Scotland (RBS.L), warning its exposure to the Irish mortgage market means there's plenty more suffering ahead.

Thursday's data release from the Central Bank of Ireland gave an indication of what lies ahead. 'In Q3 2012, 90 day+ mortgage arrears (by value) increased to 15.1% (Q2: 14.1%, Q1: 13.3%) which, for the market as a whole, doesn’t even represent a slowing pace of deterioration,' Gordon said.

'RBS has £19 billion of Irish residential mortgages - 60% of which are already in negative equity.'

Although Gordon acknowledged that Ireland accounts for only 10.1% of RBS’s balance sheet, it has contributed 45% (or £9.3 billion) of group impairments over the past 11 quarters.

'It is disappointing that for all the many good things about the RBS turnaround story, the legacy of past mistakes will still be with us for several years to come.,' he added. 'As such, we regret that, for now, we must remain sellers.'

Shares in the group closed at 302.3p on Friday, up 2.1p or 0.7%.

Key stats
Market capitalisation	£774m
No. of shares out	301m
No. of shares floating	292m
No. of common shareholders	not stated
No. of employees	691
Trading volume (10 day avg.)	1m
Turnover	£306m
Profit before tax	£72m
Earnings per share	23.50p
Cashflow per share	24.51p
Cash per share	167.61p

*Correct as at 14 Dec 2012

UBS downgrades Paragon

Anton Kryachok, analyst at UBS, has downgraded buy-to-let lender Paragon (PAG.L) from 'buy' to 'neutral' following a surge in the shares over the past six months.

Paragon's successful share placement and rising dividends have helped the shares gain more than 70% since May, Kryachok noted.

However, following this rerating the investment debate over Paragon will essentially come down to the pace of buy-to-let lending and the company's ability to improve its return on equity, Kryachok said. These are areas where he expects 'solid but gradual' progress.

Shares in the group closed at 256.2p on Friday, down 5.8p or 2.2%.

Key stats
Market capitalisation	£59m
No. of shares out	99m
No. of shares floating	69m
No. of common shareholders	not stated
No. of employees	976
Trading volume (10 day avg.)	0m
Turnover	£101m
Profit before tax	£2m
Earnings per share	1.53p
Cashflow per share	6.61p
Cash per share	24.68p

*Correct as at 14 Dec 2012

Seymour Pierce raises target price on Moss Bros

Freddie George, analyst at Seymour Pierce, has increased his target price for smart-clothes specialist Moss Bros (MSB.L) following an encouraging trading update.

In the 19 weeks to 8 December retail like-for-like sales rose 3.7% year-on-year, with sales in the 45 weeks to 8 December 4.9% ahead of last year. Margins also improved as a result of a fall in the price of cotton.

'Following this update, we are raising our FY13 pre-tax profit forecast from £1.5 million to £1.8 million taking earning per share up from 1.5p to 1.8p to bring them more into line with consensus,' George said.

'The turnaround of Moss Bros, the UK’s No 1 branded suit specialist continues on a positive track. However, we believe the recovery is fully reflected in the rating of 31.9x FY13 forecast earnings declining to 19.1x in the following year. We reiterate our Hold recommendation but upgrade our price target from 45p to 55p.'

Shares in the group closed at 59.9p on Friday, up 1.9p or 3.3%.

Key stats
Market capitalisation	£4,486m
No. of shares out	393m
No. of shares floating	391m
No. of common shareholders	not stated
No. of employees	23200
Trading volume (10 day avg.)	1m
Turnover	£3,030m
Profit before tax	£257m
Earnings per share	64.91p
Cashflow per share	101.24p
Cash per share	52.35p

*Correct as at 14 Dec 2012

Deutsche Bank upgrades Smiths Group to 'buy'

Martin Wilkie, analyst at Deutsche Bank, has upgraded engineering business Smiths Group (SMIN.L) from 'hold' to 'buy', saying worries about profit margins and excessive market expectations regarding disposals are now receding.

'We think that 2013 could allow Smiths to outline new financial targets, now that cost programs are underway in the underperforming divisions, and that US governmental spending uncertainty should be resolved in Q1,' he said.

'Separately, we think that the template of the Invensys Rail disposal to Siemens suggests disposals for Smiths could come sooner than we'd previously thought.'

Wilkie's target price rises from £11.50 to £13.35.

Shares in the group closed at £11.45 on Friday.