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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.
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.
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.
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.
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.
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)
- William Hill PLC (WMH.L)
- French Connection Group PLC (FCCN.L)
- Legal and General Group PLC (LGEN.L)
- Cineworld Group PLC (CINE.L)