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The Expert View: French Connection, Legal & General and Cineworld

A round-up of analyst notes, including their take on William Hill and Game

by Harry Brooks on Feb 07, 2012 at 05:01

We’ve rounded up some of the best comment from top analysts to give you their views on French Connection, Legal & General, Cineworld, William Hill and Game.

Key stats
Market capitalisation£51m
No. of shares out96m
No. of shares floating51m
No. of common shareholdersnot stated
No. of employees2834
Trading volume (10 day avg.)0m
Profit before tax£9m
Earnings per share9.18p
Cashflow per share12.83p
Cash per share35.57p

*Correct as at 6 Feb 2012

Seymore Pierce cuts profit forecast for French Connection as sales disappoint

Freddie George, analyst at Seymore Pierce, has placed fashion retailer French Connection (FCCN.L) under review and downgraded his 2012 profits forecast following a disappointing trading update.

According to the group UK/Europe like-for-like sales in the three months leading up to mid-November fell 9.5% year-on-year, forcing the firm to discount stock in both the lead-up to Christmas and also in January. George said that the mild weather this year, combined with too much emphasis on winter wear at the chain, was to blame.

George has downgraded his 2012 financial year pre-tax profits forecast from £5 million to £4 million, and his earnings-per-share forecast for the year from 4.0p to 3.2p. The analyst warned that 'After a second profits warning in six months management will need to improve credibility before any change in view.'

Shares in French Connection closed at 52p on Monday, down 7p.

Key stats
Market capitalisation£7,034m
No. of shares out5,871m
No. of shares floating5,658m
No. of common shareholdersnot stated
No. of employees8662
Trading volume (10 day avg.)15m
Profit before tax£820m
Earnings per share13.88p
Cashflow per share14.61p
Cash per share222.20p

*Correct as at 6 Feb 2012

Numis downgrades Legal & General on share price gains

Richard Gradidge, analyst at Numis, has downgraded financial services group Legal & General (LGEN.L) from 'add' to 'hold' as he believes the current share price offers little room for gains.

Gradidge said that shares in the group are currently trading close to their July 2011 level, when a sector de-rating based on fears about the eurozone economy was implemented.

The analyst added that the company's spot price to net tangible asset rating is 'currently at its strongest-ever level relative to the UK life insurance peer group over the period of our analysis since January 2005'.

'As such,' the analyst concluded, 'we think there is better upside potential elsewhere in the sector'.

Shares in Legal & General closed at 120.5p on Monday, down 0.9p.

Key stats
Market capitalisation£309m
No. of shares out142m
No. of shares floating138m
No. of common shareholdersnot stated
No. of employees4625
Trading volume (10 day avg.)0m
Profit before tax£21m
Earnings per share14.71p
Cashflow per share26.75p
Cash per share7.48p

*Correct as at 6 Feb 2012

Panmure Gordon backs Cineworld on strong film slate

Lindsey Kerrigan, analyst at Panmure Gordon & Co, has retained a 'buy' recommendation on Cineworld (CINE.L) based on a promising film slate for the year ahead.

Despite noting that the Euro 2012 football tournament and the Olympics would both reduce trading in the short term, Kerrigan said that the next Bond film, titled 'Skyfall'; the latest installment of the Batman franchise, titled 'Dark Knight Rides; and 'The Twilight Saga: Breaking Dawn part 2' would all put bums on seats.

Kerrigan also said that the chain's roll-out of digital projectors - this has now been completed at 75% of the group's outlets, the analyst said - would improve cash flow from the second half of the year onwards.

Shares in Cineworld closed at 217.50p on Monday, up 0.50p.

Cineworld is among Citywire AAA-rated David Taylor's pick of three top 'cash machine' stocks.

Key stats
Market capitalisation£1,598m
No. of shares out701m
No. of shares floating697m
No. of common shareholdersnot stated
No. of employees16900
Trading volume (10 day avg.)2m
Profit before tax£130m
Earnings per share18.41p
Cashflow per share27.98p
Cash per share15.67p

*Correct as at 6 Feb 2012

Morgan Stanley downgrades 'value trap' William Hill

Vaughan Lewis, analyst at Morgan Stanley, has downgraded bookmaker William Hill (WMH.L) from 'equal weight' to 'underweight' as he believes the consensus opinion that earnings-per-share growth is in store won't be realised.

Explaining his decision to downgrade the bookmaker, Lewis cited three key questions for betting outlets in the coming year. First, he said, the decline in retail profitability is structural, and he sees no reason why the ongoing declines since 2004 should abate.

Second, Lewis said that internet sales growth won't be sufficient to cover retail losses. He noted that just 30% of sales at the bookies are currently conducted over the internet, and he described the firm's position in overseas online gambling as 'structurally weak'.

Finally, Lewis warned that although William Hill shares may appear cheap, they are in fact value traps. 'Relative to the wider market, they appear expensive, and given the structural risks in retail, andthe overhang of duty threats in both online and retail, we think the shares are value traps,' Lewis concluded.

Shares in William Hill closed at 230p on Monday, down 4.2p.

Key stats
Market capitalisation£23m
No. of shares out347m
No. of shares floating340m
No. of common shareholdersnot stated
No. of employees10218
Trading volume (10 day avg.)16m
Profit before tax£16m
Earnings per share4.51p
Cashflow per share13.30p
Cash per share43.53p

*Correct as at 6 Feb 2012

Singer upgrades Game's target price as new loan default averted

Mark Photiades, analyst at Singer Capital Markets, has significantly increased his target price for high-street computer games shop Game (GMG.L) following news that a loan default has been averted.

Photiades now predicts Game's January loss before tax to total £18 million, down from a previous estimate of £30 million. Following the revised guidance Photiades has upgraded his target price from a pitiful 1p to 3.5p. The group has confirmed that it has now agreed new terms with its lenders.

However, the analyst made it clear that the chain is by no means in the clear: 'Game now has some breathing space but the market may have underestimated just how dire the situation had got.

'Our target price increases to 3.5p but we maintain our sell rating given the risk and we have limited visibility from the strategy review at this stage,' he added.

Shares in Game closed at 6.81p on Monday, up 0.17p.

More about this:

Look up the shares

  • The Game Group PLC (GMG.L)
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  • William Hill PLC (WMH.L)
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  • French Connection Group PLC (FCCN.L)
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  • Legal and General Group PLC (LGEN.L)
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  • Cineworld Group PLC (CINE.L)
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Look up the fund managers

  • David Taylor
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