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The Expert View: Morrisons, William Hill and Big Yellow

A roundup of some of the best analyst commentary on shares, including Nichols and Imagination Technologies.

by Harry Brooks on Jan 08, 2013 at 05:01

Our daily round-up of analyst recommendations and commentary, featuring Morrisons, William Hill, Big Yellow, Nichols and Imagination Technologies.

Key stats
Market capitalisation£6,190m
No. of shares out2,409m
No. of shares floating2,051m
No. of common shareholdersnot stated
No. of employees57169
Trading volume (10 day avg.)6m
Profit before tax£690m
Earnings per share26.03p
Cashflow per share38.86p
Cash per share9.52p

*Correct as at 7 Jan 2013

Shore Capital warns more downgrades ahead for Morrisons

Clive Black, analyst at Shore Capital, has put his forecasts for Morrisons (MRW.L) under review and reiterated his 'sell' stance following disappointing Christmas trading figures.

Like-for-like sales in the six weeks to 30 December fell 2.5%, worse than the 2.1% fall in its third quarter. Black noted that once inflation is factored in the real figure is more like 4%.

'To add to our worries about the trading performance, and so the financial out-turn for Morrison's, we must not lose sight of the fact that the group is vertically integrated and, as such, the burden of negative operational gearing is greater than may be the case for some of its peers,' he added. 'Accordingly, ahead of the conference call with management we are putting our profit forecasts under review, with the expectation of a further downgrade to estimates.'

Over at Seymour Pierce Kate Calvert also reiterated her 'reduce' recommendation, saying ‘the failure of a sales recovery despite soft comparables [with last year] is more concerning for FY14 [2014 calendar year] and it is becoming more inevitable that profits will decline again year-on-year’.

Shares in the group closed at 257.9p on Monday, up 1p or 0.4%.

Key stats
Market capitalisation£2,459m
No. of shares out706m
No. of shares floating702m
No. of common shareholdersnot stated
No. of employees16900
Trading volume (10 day avg.)1m
Profit before tax£115m
Earnings per share16.28p
Cashflow per share26.56p
Cash per share16.28p

*Correct as at 7 Jan 2013

Nomura lifts target price for William Hill

Richard Stuber, analyst at Nomura, has increased his target price for gambling shop operator William Hill (WMH.L) having incorporated its acquisition of Sportingbet's Australian outfit into his projections.

The acquisition, valued at a net £454 million, should be completed by the end of the first quarter, Stuber said. The valuation represents a historic enterprise value/earning ratio of 13x, and remains subject to shareholder approval and an Australian licence.

Stuber expects revenues from Australia to rise 20% this year, and he called the buy-out an 'astute deal'. His target price rises 21% to 315p. However, this remains significantly behind the current price of the shares, so Stuber retains his 'reduce' stance.

Shares in the group closed at 348.3p on Monday, down 3.2p or 0.9%.

Key stats
Market capitalisation£477m
No. of shares out130m
No. of shares floating104m
No. of common shareholdersnot stated
No. of employees310
Trading volume (10 day avg.)0m
Profit before tax£-36m
Earnings per share-27.68p
Cashflow per share-27.25p
Cash per share7.74p

*Correct as at 7 Jan 2013

UBS initiates Big Yellow with 'buy' recommendation

Harry Stokes, analyst at UBS, has initiated coverage of self-storage business Big Yellow (BYG.L) with a 'buy' recommendation, citing its continued growth during the recession as evidence of the solidity of its business plan.

'The company generated an earnings compound annual growth rate of 8% between FY07 and FY12, and, based on the cost of its assets, an average return on equity of 12.6%, reflecting a range from 9.6% to 15.4% over the five-year period,' he said.

'Big Yellow has taken a strategic decision to pause development and focus on intensifying returns from existing stores: over the next five years, we forecast occupancy rising to 76% from 67%, 8% annual average growth in operating cash flow, and 18% annual average dividend per share growth.'

Stokes has a target price of 395p on the shares.

Shares in the group closed at 364.4p on Monday, up 1.9p or 0.5%.

Key stats
Market capitalisation£319m
No. of shares out37m
No. of shares floating22m
No. of common shareholdersnot stated
No. of employees169
Trading volume (10 day avg.)0m
Profit before tax£13m
Earnings per share36.25p
Cashflow per share37.52p
Cash per share54.40p

*Correct as at 7 Jan 2013

Canaccord bumps up target price for Nichols

Wayne Brown, analyst at Canaccord, has increased his target price for soft-drinks maker Nichols (NICL.L) following an encouraging trading update, but he retains his 'hold' recommendation, saying the shares are up with events.

In the second half of the year total sales rose 9% year-on-year to £108 million, beating Brown's forecast of £107.8 million.

'Whilst this represents an H2 slowdown to 8% from +10% in H1 one should set this incontext that the group has achieved a three year compounded growth rate of +42.8%,' Brown said. 'The group has achieved material out-performance versus the UK soft drinks market which grew 3.2% in value (for the year to 8 December).'

Brown's target price rises 14% to 820p, but this is still some way below the current level.

Shares in the group closed at 858p on Monday, up 33p or 4%.

Key stats
Market capitalisation£1,211m
No. of shares out265m
No. of shares floating236m
No. of common shareholdersnot stated
No. of employees967
Trading volume (10 day avg.)1m
Profit before tax£20m
Earnings per share7.45p
Cashflow per share9.56p
Cash per share25.08p

*Correct as at 7 Jan 2013

Investec drops target price for Imagination Technologies

James Goodman, analyst at Investec, has reduced his target price for chip designer Imagination Technologies (IMG.L) following a tough few months for the shares.

The shares are down about 25% since their September high, despite the sector as a whole making gains. This decline came amid fears of declining royalty rates, and recently increasing costs have become another worry for investors.

Although Goodman said the risks are real, the shares look oversold: 'Concerns over royalty rates are valid, but we see MediaTek business as accretive and are confident that rates will stabilise in H2. Modest upside, given the stock’s volatility, to our TP of 490p (from 498p - remaining at 30x FY14E earnings per share) keeps us at Hold, but we see near-term risks as positive.'

Shares in the group, for which Goodman has a target price of 490p, down from 498p previously, closed at 456p on Monday, up 18p or 4%.

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  • WM Morrison Supermarkets P L C (MRW.L)
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  • William Hill PLC (WMH.L)
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  • Big Yellow Group PLC (BYG.L)
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  • Imagination Technologies Group PLC (IMG.L)
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  • Nichols PLC (NICL.L)
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