The Expert View: Morrisons, FirstGroup, Marks & Spencer
A round-up of the best analyst commentary on shares, also including Ted Baker and Dixons.
Expectations for Ted Baker are high after ‘outstanding’ 2013
Designer clothes retailer Ted Baker (TED.L) is expected to continue its ‘outstanding’ performance into this year, as it expands further into international markets.
Jefferies analyst Charmain Yap placed a target price of £23.00 on the shares and maintained a ‘buy’ recommendation, predicting that the brand ‘has much further to go’.
Yap said 2013 had set a high benchmark for the company ‘but we forecast a reacceleration in sales and earnings growth in 2015/16 given the brand’s international potential’.
Sales since Christmas have been strong and over the next 12 months Yap expects it to benefit from resonance in the US and Asia and a growth in online sales.
Shares lost 3%, or 70p, to finish at £22.30 on Thursday.
Investec upgrades FirstGroup to ‘buy’
Investec has increased its rating for bus and train company FirstGroup (FGP.L) to a ‘buy’ and increased its target price.
John Lawson, analyst at Investec, said the next 12 months would be ‘critical for management [at FirstGroup] to convince the market that it has the right strategy and can demonstrate ambiguously that the business is being turned around’.
While he noted that the task is greater than that faced by peer National Express, ‘we believe that the risk/reward ratio should finally begin to favour the bold investor’, he said, moving the shares from ‘add’ to ‘buy’.
‘Some might argue that the group’s liabilities (debt and pensions) remain still too high but…if the self-help programme works as planned, then we expect these fears to dissipate and debt levels will being to fall in a meaningful way,’ said Lawson.
Shares pushed up 5.75%, or 7.5p, to end Thursday at 138p.
Dixons to emerge as a retail ‘winner’
Electrical retailer Dixons (DXNS.L) has benefitted from fewer competitors in the UK, but it is suffering in other parts of Europe.
However, this has failed to dampen the enthusiasm of Barclays’ analyst Christodoulous Chaviaras who said that Dixons is likely to become a high-street winner.
He placed a target price of 62p on the shares and reiterated his ‘overweight/neutral’ recommendation.
Chaviaras said the sale of tablets and small devices has ‘kept up the positive momentum in the UK’ and while Northern Europe has seen increased competition, the situation in Greece is turning around.
‘Christmas trading has been somewhat mixed so far within the retail sector but we believe that Dixons will likely emerge as one of the winners,’ he said. ‘After a few profit warnings and negative comments on footfall by many retailers, Dixons’ positive trading momentum will stand out in our view.
Shares fell 1.89%, or 0.9p, to end Thursday at 48p.
Marks & Spencer suffers from debt and under-investment
Cantor has reiterated its ‘sell’ recommendation for high street stalwart Marks & Spencer (MKS.L) after poor third quarter trading and concerns about running costs.
Freddie George, analyst at Cantor, also lowered the target price for the shares from 425p to 410p after a trading update led Cantor to revise its full year 2014 pre-tax profit forecasts from £630 million to £610 million.
George said the ‘sell’ recommendation was based on the belief it would take ‘a number of seasons’ before improvements in womenswear, under-investment in IT and supply chains, and debt levels of £2 billion, ‘restricting the potential for an accelerated dividend payout’.
Despite analyst concerns share rose 3.5%, or 15.6p, on Thursday to end the day at 460.5p.
Panmure cuts Morrisons’ target price
After a disappointing Christmas period Panmure has cut its target price for Morrisons (MRW.L) and investor sentiment is low.
Panmure’s Graham Jones maintained his ‘sell’ recommendation’ and cut the target price from 240p to 210p.
The supermarket has failed to prevent two cuts to trading forecasts by analysts.
‘Morrison’s trading problems appear to have mounted; in a quarter when it had been flagging it expected to return to like-for-like sales growth,’ said Jones. ‘Christmas trading saw like-for-like’s excluding fuel decline by a whopping 5.6% against our forecast of -2% for the quarter as a whole.
‘After cutting our forecast by 3% at the start of this week, we cut forecasts by a further 3% today.’
Morrisons’ shares dropped 7.75%, or 19.7p, to 234.5p on Thursday.