The Expert View: Burberry, ARM Holdings and Aurum Mining
A roundup of some of the best analyst commentary on shares, including Ocado and Halfords.
Solid results support 'buy' on Burberry, Seymour Pierce says
Healthy Christmas trading figures should reassure investors that luxury clothing company Burberry (BRBY.L) remains a compelling buy, Seymour Pierce analyst Kate Calvert has said.
In the three months to 31 December underlying revenues rose 9% year-on-year, and retail revenues rose 13%, with comparable store sales up 6%. Scarves, mens tailoring and accessories were cited as the big sellers. Wholesale revenues, however, fell 5%.
'These results should reassure and improve sentiment after last September's blip in trading when Burberry was affected by the industry slowdown rather than anything company specific,' Calvert said.
'We still consider Burberry a strong long term growth story with significant geographical and product mix opportunities. Given the recent rally in the shares, they may consolidate around this area short term.'
Calvert reiterated her 'buy' recommendation and £15 target price.
Shares in the group closed at £13.85 on Tuesday, up 60.3p or 4.6%.
Morgan Stanley downgrades ARM Holdings
ARM Holdings (ARM.L) is the best in its class, according to Morgan Stanley analyst Francois Meunier, but the price of the shares has prompted him to downgrade the chipmaker from 'overweight' to 'equal weight'.
A year ago investors were worried about competition from rival chip designer Intel, Meunier said, but things are looking much better now. 'We believe the current share price implies a near perfect trajectory in ARM’s market share and royalty rate for the next two years,' he said.
However, the shares have risen along with expectations of growing market share. 'Everything we were hoping for 12 months ago is now taken for granted due to strong news flow, including the iPad mini launch, disappointing Ultrabook launch and weak PC sales. It will be difficult for news flow to improve from here,' he said.
'While we remain very impressed by ARM and its partners’ progress, we believe the current absolute share price is not attractive enough for new money, and we downgrade the shares to equal weight.'
Shares in the group closed at 838.5p on Tuesday, down 34.5p or 4%.
Aurum Mining: a ‘speculative’ investment in Spanish gold
Probably not for the faint-hearted this one. WH Ireland analyst Paul Smith has put a ‘speculative buy’ recommendation on Aurum Mining (AUR.L), arguing that ‘the shadows of the past in Kyrgyzstan and its retreat into a shell company are over’ as the company has a clear strategy to profit from projects to mine gold and tungsten in Spain.
The AIM listed exploration and development company had to retreat from a gold and copper project in the Kyrgz Republic, selling it in 2010, and has since then gone through a complete restructuring.
‘Aurum is effectively a new company and we do not believe the market fully appreciates that it has come out of its shell status and become an operating company with tangible projects,’ according to Smith, adding that results from the company’s joint gold venture in Spain have been ‘very encouraging’.
WH Ireland has a 4.7p target price on the shares.
Shares in the group closed at 3.5p on Tuesday.
Ocado will struggle to deliver, Shore Capital warns
Although Ocado (OCDO.L) shares look set to be a bit less volatile this year, structural pressures on the business model mean Shore Capital analyst Clive Black remains sceptical.
Following a successful capital raising in November Ocado is well placed to finish off its new CFC2 distribution centre and build its margins. 'However, for Ocado to be in the position that it has no debt and rising cash balances to explore shareholder friendly initiatives requires a stepped change in operating margins,' Black said, reiterating his 'sell' stance.
Although Black said it wouldn't be right to suggest Ocado won't be able to improve its margins, its inherently high fulfilment costs given the distance between its distribution hubs and customers is problematic.
'The company has to prove that it can substantially build margins, on which we remain sceptical, and so build earnings that bring the share out of the stratosphere in valuation terms. Whilst 'never saying never', we remain equally sceptical that such a day will ever be reached,' he said.
Shares in the group closed at 85.5p on Tuesday, up 1.4p or 1.7%.
Investec says 'buy' Halfords
Strong demand for car maintenance suggests the new service-led strategy at Halfords (HFD.L) is the right approach, according to Investec analyst Bethany Hocking.
In the 15 weeks to 11 January total retail sales crept up 0.1%, while sales in the cycling part of the business fell 1.6% in like-for-like terms. However, Halfords' 'Wefit' outfit saw sales surge a record 39.5%. Based on sales in the year so far, pre-tax profit guidance has been increased from £66 million-£70 million to £68 million-£72 million.
'We reiterate Buy and point to the record fitting penetration as proof that the service-led strategy is the right one to take,' Hocking said.
Shares in the group closed at 334.1p on Tuesday, up 5.6p or 1.7%.