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The Expert View: Dunelm, Barclays and Thomas Cook

Our daily roundup of analysts' share recommendations and commentary, also featuring Bellway and McBride

Our daily round-up of analyst recommendations and commentary, featuring Dunelm, Barclays, Bellway, McBride and Thomas Cook.

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Key stats
Market capitalisation£1,829m
No. of shares out203m
No. of shares floating87m
No. of common shareholdersnot stated
No. of employees7977
Trading volume (10 day avg.)0m
Profit before tax£81m
Earnings per share39.95p
Cashflow per share49.94p
Cash per share22.25p

*Correct as at 11 Feb 2014

Peel Hunt downgrades ‘must-hold stock’ Dunelm

Peel Hunt has downgraded homewares group Dunelm (DNLM.L) from ‘buy’ to ‘hold’ as the shares lost ground after gaining 35% in 2013.

Analyst John Stevenson also decreased the target price from £11.00 to 975p (current price 922p) but still praised Dunelm for its successful opening of six new stores with more in the pipeline.

He noted that over the medium and long-term there were opportunities for outperformance and that it remains a ‘compelling’ stock.

‘While Dunelm remains one of the ‘must own’ stocks in the sector in our view, we struggle to chase the shares at current levels without an expectation of short-term forecast outperformance,’ said Stevenson.

‘Indeed, we expect the shares to continue to drift for now. While we would view significant weakness as a buying opportunity, we cut our recommendation to ‘hold’ and reduce our target price.’

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Key stats
Market capitalisation£42,354m
No. of shares out16,115m
No. of shares floating15,962m
No. of common shareholdersnot stated
No. of employees139900
Trading volume (10 day avg.)48m
Profit before tax£-624m
Earnings per share-4.72p
Cashflow per share9.71p
Cash per share650.33p

*Correct as at 11 Feb 2014

Revelations that 27,000 Barclays (BARC.L) customers have had their personal details stolen from the bank and that it is to shed 12,000 jobs this year did little to dampen Shore Capital analysts’ outlook.

Analyst Gary Greenwood recommended a ‘buy’ and a target price of 275p (current price 269p) on the shares following the issue of preliminary results for the year to the end of December 2013.

Overall, profits before tax of £5.2 billion were above Greenwood’s expectations of £5.1 billion and offset a short fall in the investment bank’s profits.

The bank also stated that it will hit the Prudential Regulation Authority (PRA) leverage ratio of 3.5% by the end of 2015.

‘We believe the new capital ratio targets are less onerous than feared by some commentators while the achievement of the PRA defined leverage ratio target of 3% ahead of expectations will be welcomed by the market,’ said Greenwood.

He added that ‘the management is taking the right approach to improving capital efficiency’.

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Key stats
Market capitalisation£2,011m
No. of shares out122m
No. of shares floating120m
No. of common shareholdersnot stated
No. of employees1733
Trading volume (10 day avg.)0m
Profit before tax£109m
Earnings per share88.87p
Cashflow per share90.56p
Cash per share19.89p

*Correct as at 11 Feb 2014

Bellway benefits from housing market boom

A strong first half from housebuilder Bellway (BWY.L) has prompted Jefferies to reiterate its ‘buy’ rating and increase the target price.

Analyst Anthony Codling placed a target price of £21.86 on the shares, up from £20.85 (current price £16.43).

An improving housing market led Codling to increase volume estimates – the number of homes being built – in 2014 from 6,500 to 6,700. The increase was also due to plans to build in two new areas; Manchester and Thames Valley.

‘Bellway reported growing competition in the land market in some areas, mainly the south and we expect that the group’s land purchases are now more balanced – 50:50 north:south – than they have been post downturn, where at times the split was 33:67 in favour of the south,’ said Codling.

He added that the group spent £240 million on land in the first half of the year and agreed terms on a further 4,700 plots.

‘Bellway’s fortunes are linked to the underlying UK housing market, any negative shocks to house prices and mortgage availability may lead us to reduce our estimates. In addition concerns about future mortgage rates may weaken investor sentiment towards the sector,’ said Codling.

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Key stats
Market capitalisation£184m
No. of shares out182m
No. of shares floating180m
No. of common shareholdersnot stated
No. of employees4898
Trading volume (10 day avg.)0m
Profit before tax£6m
Earnings per share3.22p
Cashflow per share16.89p
Cash per share2.69p

*Correct as at 11 Feb 2014

McBride looks ahead to second half of the year

Household products maker McBride (MCB.L) is still a ‘buy’ for Investec despite a tough first half to the year.

Analyst Nicola Mallard placed a target price of 120p (current 104p) on the shares and expects McBride, which owns the Oven Pride brand, to pick up in the second half of the year.

Mallard said interim results for 1H are in line with guidance issued last month that show a 3% revenue decline. She said the group ‘has had a good degree of success’ with new product launches in Western Europe and declines in profit ‘is more a factor of a very competitive UK marketplace’.

‘There will be less impact on the business from the deliberate run-down in certain lines in 2H, which should allow for a better revenue and earnings before interest and tax performance, although this will be dependent to some extent on the UK trading environment,’ she said.

In a separate announcement McBride group finance director Richard Armitage has announced his intention to leave the company to pursue an ‘alternative career opportunity’ but will stay until a successor is appointed.

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Key stats
Market capitalisation£2,668m
No. of shares out1,459m
No. of shares floating1,432m
No. of common shareholdersnot stated
No. of employees26448
Trading volume (10 day avg.)6m
Profit before tax£-199m
Earnings per share-16.67p
Cashflow per share1.42p
Cash per share74.94p

*Correct as at 11 Feb 2014

Numis downgrades loss-making Thomas Cook

Numis downgraded Thomas Cook (TCG.L) from ‘add’ to ‘hold’ as it expects some ‘consolidation in the share price’.

Analyst Wyn Ellis placed a target price of 175p (current price 182p) on the shares after Q1 results that showed earnings before interest and taxes had improved by £10 million but still registered a loss of £56 million.

The travel agent’s management said the reduction in loss gives ‘confidence of achieving our targets and delivering even more value in the years to come’ and bookings for this year are in line with expectations and on a similar level to last year.

In its announcement Thomas Cook said it is confident about its product development and ‘profit improvement programmes’ that would allow it to sustain long-term profitable growth.

Ellis said: ‘We believe that there is little in the Q1 announcement to excite the market in the short term and expect some consolidation in the share price.’

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