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The Expert View: Ocado, Sports Direct and ITV

A round-up of analyst notes, including their take on Domino's Pizza and Essar Energy.

by Harry Brooks on Feb 16, 2012 at 05:01

We’ve rounded up some of the best comment from top analysts to give you their views on Ocado, Sports Direct, ITV, Domino's Pizza and Essar Energy.

Key stats
Market capitalisation£531m
No. of shares out530m
No. of shares floating279m
No. of common shareholdersnot stated
No. of employees4252
Trading volume (10 day avg.)3m
Turnover£598m
Profit before tax£0m
Earnings per share-0.10p
Cashflow per share5.03p
Cash per share16.50p

*Correct as at 15 Feb 2012

UBS downgrades Ocado as share price doubles

Mike Tattersall, analyst at UBS, has downgraded online groceries business Ocado (OCDO.L) from 'buy' to 'neutral' despite strong trading over Christmas as he believes the current share price leaves little upside potential.

In the year to date shares in the group have virtually doubled in price, in keeping with the stock's history of volatility since the 2010 initial public offering. Tattersall said that speculation on the company has contributed to this volatility, as Ocado is the third most-shorted stock on the FTSE 350.

Despite the share-price gains, Tattersall sees challenges ahead: 'The business has yet to prove fully its credentials ... Consensus forecasts, in our view, remain somewhat optimistic, especially for the 2013 financial year, when the launch of CFC2 seems likely to act as an initial drag on margins,' he said. CFC2 is a distribution centre currently being built in North Warwickshire that is hoped to remedy the supply chain bottlenecks that have dogged the firm.

Shares in Ocado closed at 100.12p on Wednesday, down 0.55p or 0.55%.

Key stats
Market capitalisation£1,617m
No. of shares out577m
No. of shares floating153m
No. of common shareholdersnot stated
No. of employees10319
Trading volume (10 day avg.)0m
Turnover£1,599m
Profit before tax£84m
Earnings per share13.93p
Cashflow per share24.16p
Cash per share10.50p

*Correct as at 15 Feb 2012

Seymour Pierce lifts Sports Direct's price target on 'impressive' sales

Freddie George, analyst at Seymour Pierce, has increased his target price for tracksuits and trainers retailer Sports Direct (SPD.L) following what he called an 'impressive' performance over the past few months.

Sales in the period between 24 October and 14 February rose 9.1% to £454 million, according to the company's latest statement, beating George's forecast of a 8.2% increase. Gross profits rose 10.2% to £184.4 million, slightly lagging George's forecast of +10.7%. However, following the update George is increasing his pre-tax profit estimate from £160 million to £165 million.

The analyst upgraded Sports Direct to a 'buy' back in December, and he noted that since then the stock has risen by 25%. The price target has now been lifted from 240p to 285p.

George said that the relatively low valuation, the opportunity to benefit from sporting events in the year ahead, and internet sales all support the higher target price.

Shares in Sports Direct closed at 278p on Wednesday, down 15.2p or 5.78%.

Key stats
Market capitalisation£3,100m
No. of shares out4,013m
No. of shares floating3,576m
No. of common shareholdersnot stated
No. of employees3947
Trading volume (10 day avg.)14m
Turnover£2,064m
Profit before tax£269m
Earnings per share6.90p
Cashflow per share9.76p
Cash per share22.11p

*Correct as at 15 Feb 2012

Peel Hunt downgrades ITV after share price surges

Patrick Yau, analyst at Peel Hunt, has downgraded broadcaster ITV (ITV.L) from 'buy' to 'hold' following the recent rise in the company's shares.

ITV will release its preliminary results at the end of the month, but unless an acquisition is announced Yau says he sees little potential for the group to beat his forecasts. 'With much of the upswing in 2012 TV revenues now factored into our numbers for the year, given a boost by the Euro 2012 tournament in the summer, we believe the upside now looks limited,' he said.

Yau said he remains positive on the company's trading outlook, and he highlighted that ITV Studios is performing particularly well at the moment, with nine-month revenues up 9% to £224 million.

However, now that ITV's share price is close to his target of 83p, he has opted to downgrade the shares.

Shares in ITV closed at 77.30p on Wednesday, down 1.20p or 1.53%.

Key stats
Market capitalisation£776m
No. of shares out162m
No. of shares floating109m
No. of common shareholdersnot stated
No. of employees433
Trading volume (10 day avg.)1m
Turnover£188m
Profit before tax£24m
Earnings per share14.85p
Cashflow per share16.25p
Cash per share20.46p

*Correct as at 15 Feb 2012

Collins Stewart downgrades Domino's Pizza on lacklustre growth outlook

Wayne Brown, analyst at Collins Stewart, has downgraded Domino's Pizza (DOM.L) to 'hold' as he believes the company will struggle to generate meaningful sales growth in the year ahead.

Trading in the first seven weeks of 2012 was pretty much constant with the last 13 weeks of 2011, with like-for-like (LFL) sales growth of 3.7%. Although Brown said any organic growth was commendable given the consumer picture, he noted that LFL sales growth of 3-4% is a significant climbdown from the average of 10.9% over the past five years.

'We were looking for a signal in today’s announcement that could boost the volume element of the group’s growth rate,' the analyst said. There are no short-term plans to increase the rate of store openings to more than 60, although Brown did note that the group plans to ramp up investment in e-commerce, which now accunts for more than 44% of orders.

Shares in Domino's Pizza closed at 479.78p on Wednesday, up 12.50p or 2.62%.

Key stats
Market capitalisation£1,704m
No. of shares out1,303m
No. of shares floating302m
No. of common shareholdersnot stated
No. of employees2357
Trading volume (10 day avg.)2m
Turnover6,358m USD
Profit before tax128m USD
Earnings per share0.11 USD
Cashflow per share0.20 USD
Cash per share0.53 USD

*Correct as at 15 Feb 2012

Morgan Stanley upgrades Essar Energy as tax battle rumbles on

Nicholas Ashworth, analyst at Morgan Stanley, has upgraded India-focused Essar Energy (ESSR.L) to 'equal weight' from 'underweight' amid a courtroom battle over the deferral of a $1.78 billion tax bill.

News that the Indian Supreme Court ruled that Essar Oil, which is 87.1% owned by Essar Energy, is not entitled to defer its bill until 2021 sent shares in Essar tumbling a month ago. Ashworth expects the group to file an appeal shortly, but he says the original decision is likely to be upheld.

Ashworth believes Essar's share price now reflects the company's crop of problems, but he warns that more bad news could be on the horizon: 'A final negative Supreme Court judgement could lead to an event of default ... Whilst we expect a restructuring of the existing debt rather than a conversion to equity, there remains the risk of severe dilution of Essar Energy’s 87% stake in Essar Oil.'

The availability of coal for the group's Mahan power station is another concern, and full-year results on 27 February may not resolve the issue, he said. The analyst cautioned that it's still too early to buy shares in the group given the possibility of further negative newsflow.

Shares in Essar Energy closed at 129.15p on Wednesday, down 1.10p or 0.87%.

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  • Domino'S Pizza UK & IRL PLC (DOM.L)
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  • Essar Energy PLC (ESSR.L)
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  • ITV PLC (ITV.L)
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  • Sports Direct International PLC (SPD.L)
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  • Ocado Group PLC (OCDO.L)
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