The Expert View: Diageo, Kingfisher and Dixons
A roundup of some of the best analyst commentary on shares, including Mothercare and Paragon Group.
Diageo remains on track, Canaccord says
Canaccord analyst Eddy Hargreaves has increased his target price for drinksmaker Diageo (DGE.L) on the back of a trading update that met his expectations.
In the six months to the end of December organic sales rose 5% year-on-year, with profits up 9%. Europe suffered, with sales down 2% and profits down 3%, while Latin America surpassed expectations, with sales up 18% and profits up 23%.
'Diageo has successfully attacked its cost base over the last 18 months, while moving aggressively into new emerging markets and Spirits sub-sectors,' the analyst said.
'Aside from Western Europe, momentum is reassuring, particularly in the light of fears about a recent slowdown in the US.'
Hargreaves reiterated his 'hold' recommendation on the shares, and his target price rises 1% to £16.70.
Shares in the company closed at £18.51 on Thursday, down 1.8p or 0.1%.
Nomura cuts profit forecast for Kingfisher
A grim outlook for UK retailers has prompted Nomura analyst Sunita Entwisle to cut her profit forecast for Kingfisher (KGF.L).
Entwisle now predicts 2014 profits of £730 million for the group, which owns B&Q, Castorama, Brico Dépôt and Screwfix. The consensus estimate stands at £800 million, and more recent market estimates of about £750 million.
'Although FX has become more favourable since we last updated numbers, we now take a more pessimistic view of the UK market,' she said.
'We had previously assumed that a weather-related bounced on top of a flat market could lead to a +3% like-for-like, however given Homebase’s recent -4% 3Q LFL and general market commentary, we revise this assumption to assume that a deteriorating market will offset completely the hoped-for weather-related bounce and assume greater margin pressure as a result.'
Shares in the company closed at 269p on Thursday, down 4p or 1.5%.
Comet's demise should benefit Dixons, JPM says
The demise of electricals retailer Comet creates opportunities for Dixons (DXNS.L), JP Morgan analyst Georgina Johanan has said, and she's ramped up her target price from 16p to 28p.
'In our view Dixons should win more than its fair share of sales from Comet given the strong geographical overlap with closed Comet stores and limited remaining bricks and mortar competition,' she noted.
However, Dixon's majority ownership of e-commerce website PIXmania, which Johanan expects to post a 2014 loss of £25 million, remains a problem.
'In our view, the best case scenario would be a sale of PIXmania,' she said. 'We would view this as a strong positive given the size of the expected losses and the weak strategic positioning of the business; thus we believe that an announcement would be very well received by the market.'
Taking these positives and negatives into account Johanan retains her 'neutral' stance on the shares.
Shares in the company closed at 27.5p on Thursday, down 0.1p or 0.4%.
Mothercare's battle to 'recover its relevance'
The departure of Mothercare (MTC.L)'s managing director after just 18 months, on top of news that the group's Australian operation has entered administration, is a reminder of just how much needs to be done at the business, according to Seymour Pierce analyst Kate Calvert.
Calvert noted that Mike Logue's exit followed the appointment of Simon Calver as the new CEO in April last year. 'We suspect Mike was slightly unlucky to join Mothercare a couple of months before the previous CEO, Ben Gordon, left,' she said.
'While the board restructuring seems logical, it does make us wonder whether the turnaround task is more complex than management first thought.'
News that the Australian operation has been put into administration should remind investors that international expansion is not without risks, she added.
'We have argued for a while that Mothercare is not an easy fix. The brand may never recover its relevance again for the modern mother in its home market and is an infrastructure cost which should be offset again the international income stream for valuation purposes,' she said.
Shares in the company closed at 310p on Thursday, down 15.9p or 4.9%.
Shore Capital downgrades Paragon Group
Shore Capital analyst Gary Greenwood has downgraded buy-to-let lender Paragon Group (PAG.L) from 'buy' to 'hold' following a 54% surge in the shares over the past 12 months.
Paragon's trading statement for the first quarter showed a pre-tax profit of £23.7 million, up 17% on a year ago. This was 6% down on the previous quarter, but Greenwood said this fits with the historical trading patterns.
'The shares have had a strong run over the past year and are now trading broadly in line with our forecast end of 2013 net asset value estimate of 289p, which we do not expect to change materially following this update,' he said.
'Although we continue to like the company and highlight its strong underlying cash generation, we can no longer justify a positive stance on the shares.'
Shares in the company closed at 281p on Thursday, down 3.4p or 1.2%.