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The Expert View: Diageo, Mulberry and Imperial Tobacco
A roundup of some of the best analyst commentary on shares, also including Paragon Group and Kingfisher.
by Harry Brooks on Mar 25, 2013 at 05:01
Our daily round-up of analyst recommendations and commentary, featuring Diageo, Mulberry, Imperial Tobacco, Paragon Group and Kingfisher.
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Diageo's whisky sales in China set to suffer
Falling sales of whisky in China as a result of new anti-corruption regulations regarding gifting could knock Diageo (DGE.L)'s share price, but Shore Capital analyst Phil Carroll says not to worry because it's got plenty of other growing markets.
Fellow drinks maker Pernod spread word of the development during a conference call on its Asia division on Thursday. 'The impact was to moderate sales growth of cognac but its whisky sales are said to be down double digit,' Carroll said.
In terms of the impact on Diageo, Carroll noted that the Asia Pacific division accounts for about 15% of group sales and China within the division is much less than half of that.
'Whilst sales in China are likely to be impacted we would highlight that Diageo has sufficient strong emerging market exposure elsewhere to still deliver robust growth as a group,' Carroll said. 'Therefore, we would buy into any weakness in the Diageo share price.' The analyst reiterated his 'buy' recommendation on the shares.
Shares in the group closed at £20.30 on Friday, up 19p or 1%.
Mulberry dives on profit warning
WH Ireland analyst John Cummins has dropped his target price for Mulberry (MUL.L) following a profit warning from the upmarket fashion group.
The company warned that full-year profits won't hit expectations because of lower tourist spending in its London stores.
Following the update Cummins dropped his target price from £12 to £10, but he stood by his 'market perform' stance, arguing that the company's still got space to expand overseas.
'We believe that the immaturity of Mulberry’s presence outside of the UK means that the long term growth potential of the brand remains intact but management will need to demonstrate there are no further growing pains,' he said.
Shares in the group closed at £10.25 on Friday, down 209p or 17%.
Imperial Tobacco's still the cash king, Canaccord says
Even though trading in many European markets is in decline, Imperial Tobacco (IMP.L)'s relentless cash generation means it's a 'buy' for Canaccord's Eddy Hargreaves.
Last month Imperial Tobacco warned of falling sales in some key European markets, and Hargreaves is expecting first-half volume declines of 8% in UK, Spain and the rest of the EU, and 5% in the rest of the world. This translates into a fall of 5.2% organically at the group level, compared with his previous assumption of a 3% fall.
The analyst said the £300 million cost savings programme detailed last month is a good move, but the benefit won't be felt for a while. Nonetheless, he's staying positive.
'The company’s cash generation, total shareholder return profile and optionality around a bid for the company in the longer term combine to keep us fundamentally positive on the stock,' he said. 'The two-year price-to-earnings ratio of 9.8x, dividend yield of 5% with a commitment to increasing the payout ration, and ongoing buyback all offer clear attractions.'
Shares in the group closed at £23.06 on Friday, down 9.5p or 0.4%.
Paragon's gearing up for growth, Berenberg Bank says
Mortgage and consumer finance provider The Paragon Group of Companies (PAG.L) still offers investors good value, according to Berenberg Bank analyst Pras Jeyanandhan, who has lifted his target price from 280p to 395p.
'Despite its sharp recent re-rating triggered by last year’s successful securitisation deal and record profits, we remain positive on Paragon’s ability to grow earnings as it puts its significant surplus capital (more than £200 million) to work,' he said, reiterating his 'buy' recommendation on the shares.
The analyst expects buy-to-let lending to pick up pace in support of a growing private rental sector, and he said Paragon is still in the very early stages of rebuilding its loan book.
'After a five-year period of deleveraging, we think management is now focused on working the balance sheet harder,' Jeyanandhan added.
Shares in the group closed at 338.5p on Friday, down 5.2p or 1.5%.
Conditions tough for Kingfisher
DIY store group Kingfisher (KGF.L) will report a weak set of annual results tomorrow, Charles Stanley analyst Sam Hart has said, as a result of persistently terrible weather during the first half of the year.
In France Hart is predicting an 8% decline in operating profit to £390 million, and in the UK and Ireland Hart expects a 14% fall to £234 million.
'Our expectation is that trading conditions in Kingfisher's key markets will remain tough in 2013/14, reflecting on-going pressures on real disposable householdincomes,' he said. However, longer term Hart said there's scope for margins to be improved by increasing the proportion of goods that are sold commonly in all markets, and the valuation of the shares is 'undemanding', he said.
Hart has an 'accumulate' recommendation on the shares.
Shares in the group closed at 288p on Friday, up 1.3p or 0.5%.
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Look up the shares
- The Paragon Group of Companies PLC (PARA.L)
- Diageo PLC (DGE.L)
- Mulberry Group PLC (MUL.L)
- Kingfisher PLC (KGF.L)
- Imperial Tobacco Group PLC (IMT.L)