The Expert View: Thomas Cook, Debenhams and Hunting

Our daily round-up of analyst recommendations and commentary, featuring Thomas Cook, Debenhams, Hunting, Ladbrokes and Carpetright.

Key stats
Market capitalisation	£528m
No. of shares out	900m
No. of shares floating	879m
No. of common shareholders	not stated
No. of employees	33593
Trading volume (10 day avg.)	13m
Turnover	£9,491m
Profit before tax	£-586m
Earnings per share	-67.20p
Cashflow per share	-44.70p
Cash per share	52.00p

*Correct as at 25 Jan 2013

UBS upgrades Thomas Cook to 'buy'

The remarkable rise of high-street travel agent Thomas Cook (TCG.L) isn't over yet, according to UBS analyst Alex Brignall, who has upgraded the shares from 'neutral' to 'buy'.

The shares are up more than 400% from their lows in November 2011, and they've gained over 100% since the 2012 update when the management talked positively about the turnaround in the business. Brignall said although there's been little concrete detail regarding the turnaround plans, the rise in the shares makes a meaningful capital increase a possibility.

'Historical precedent suggests that Thomas Cook has a good chance of successfully executing a £450 million rights issue, using funds for debt reduction, bolstering cash and deeper restructuring,' he said. 'As well as the profit uplift from restructuring, we believe lower financial risk (gearing falls by 70% in two years) could lead to a re-rating.'

Brignall's target price rises from 24p to 75p, with his historical discount falling to 10% from 15% due to the lower risk of a covenant breach.

Shares in the group closed at 58.9p on Friday, up 3.7p or 6.6%.

Key stats
Market capitalisation	£1,327m
No. of shares out	1,263m
No. of shares floating	1,145m
No. of common shareholders	not stated
No. of employees	8355
Trading volume (10 day avg.)	6m
Turnover	£2,230m
Profit before tax	£125m
Earnings per share	9.77p
Cashflow per share	16.92p
Cash per share	3.48p

*Correct as at 25 Jan 2013

Debenhams has further to fall, Seymour Pierce warns

Last year's FTSE 100 darling Debenhams (DEB.L) will remain under pressure following disappointing Christmas trading, warns Seymour Pierce analyst Kate Calvert.

Calvert went to a capital markets afternoon on Thursday, which was all about 'delivering a compelling customer proposition'. Although the presentation had lots of detail about plans to improve the men's, women's, kids, lingerie, home and cosmetics ranges, the analyst was unmoved and reiterated her 'reduce' recommendation, with a reduced target price of 95p (was 100p).

'Management’s medium term targets are already assumed within our forecast and consensus,' she said. 'We expect UK profitability to remain under pressure as Debenhams has limited space growth over the next 18 months and the Oxford Street refurbishment costs to carry.

'We need evidence that the profitability of the UK business is stable before we become more positive as the company reported a fall in UK pre-tax earnings year-on-year in 2012.'

Shares in the group closed at 105p on Friday, up 0.6p or 0.6%.

Key stats
Market capitalisation	£1,243m
No. of shares out	147m
No. of shares floating	120m
No. of common shareholders	not stated
No. of employees	3453
Trading volume (10 day avg.)	0m
Turnover	£609m
Profit before tax	£28m
Earnings per share	20.27p
Cashflow per share	46.54p
Cash per share	49.02p

*Correct as at 25 Jan 2013

Hunting set to gain from US oil industry rebound, Investec says

An imminent rebound in onshore oil drilling activity in the US means a brighter outlook for industry supplier Hunting (HTG.L), according to Investec analyst Stuart Joyner.

The optimism is based partly on a conference call with US oilfield services giant Baker Hughes last week, which suggested the market looks likely to bounce back in the first quarter of 2013.

'More importantly, there are clear signs of more feet being drilled with the same number of rigs – which means the amount of downhole consumables is continuing to rise even though demand for services is still weak,' Joyner added.

'Hunting has the best exposure of the UK listed service companies to the high-end downhole consumables market.'

The analyst's target price rises from 875p to 975p, based on 13x his 2013 earnings per share estimate.

Shares in the group closed at 845.9p on Friday, up 5.4p or 0.6%.

Key stats
Market capitalisation	£1,913m
No. of shares out	909m
No. of shares floating	890m
No. of common shareholders	not stated
No. of employees	15220
Trading volume (10 day avg.)	2m
Turnover	£976m
Profit before tax	£118m
Earnings per share	12.85p
Cashflow per share	18.39p
Cash per share	2.91p

*Correct as at 25 Jan 2013

Canaccord backs Ladbrokes' Betdaq buy-out

Canaccord analyst Simon Davies has reiterated his 'buy' recommendation on Ladbrokes (LAD.L) following news that it's bought rival betting exchange market Betdaq.

Ladbrokes is paying £25 million upfront for Betdaq, with an earn-out based on 2016 profits. 'This represents an initial 10.7x FY12 earnings, given £2.4 million of pro forma profits, which looks cheap,' Davies said.

'While this is not the transformational deal that investors may still pine for (i.e. 888 etc) to turn around Ladbrokes’ ailing Online business, it represents a sensible move to buy a business where there are some relatively simple ways to add value.'

Shares in the group closed at 210.2p on Friday, up 4.1p or 2%.

Key stats
Market capitalisation	£454m
No. of shares out	68m
No. of shares floating	47m
No. of common shareholders	not stated
No. of employees	3300
Trading volume (10 day avg.)	0m
Turnover	£472m
Profit before tax	£11m
Earnings per share	16.30p
Cashflow per share	37.93p
Cash per share	14.29p

*Correct as at 25 Jan 2013

Carpetright's moving in the right direction, Shore Capital says

Shore Capital analyst David O’Brien has reiterated his 'hold' recommendation on Carpetright (CPR.L) ahead of its third-quarter results on Tuesday.

'While trading conditions in the group’s key trading period are likely to have remained challenging, management is utilising a number of initiatives to improve the top-line and in turn, gain market share,' he said.

These initiatives will include modernisation of shops, expansion of the range of beds, improving service levels and growing the online business, he said.

Store closures will reduce overall year-on-year growth O’Brien said, but on a like-for-like basis he expects Carpetright to have delivered positive growth in the UK.

'We expect management to state that the business continues at least to trade in line with expectations and on that basis we think that the current and forecast pace of earnings recovery justifies the current high rating,' he added.

Shares in the group closed at 682p on Friday, up 21.5p or 3.3%.