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The Expert View: Morrisons, FirstGroup, Marks & Spencer

  A round-up of the best analyst commentary on shares, also including Ted Baker and Dixons.

Our daily round-up of analyst recommendations and commentary, featuring Marks & Spencer, Morrisons, FirstGroup, Ted Baker and Dixons

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Key stats
Market capitalisation£988m
No. of shares out44m
No. of shares floating27m
No. of common shareholdersnot stated
No. of employees2185
Trading volume (10 day avg.)0m
Turnover£254m
Profit before tax£22m
Earnings per share49.90p
Cashflow per share70.78p
Cash per share23.07p

*Correct as at 9 Jan 2014

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.

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Key stats
Market capitalisation£1,637m
No. of shares out1,205m
No. of shares floating1,189m
No. of common shareholdersnot stated
No. of employees120475
Trading volume (10 day avg.)3m
Turnover£6,901m
Profit before tax£35m
Earnings per share5.89p
Cashflow per share78.21p
Cash per share115.40p

*Correct as at 9 Jan 2014

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.

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Key stats
Market capitalisation£1,828m
No. of shares out3,656m
No. of shares floating3,616m
No. of common shareholdersnot stated
No. of employees35323
Trading volume (10 day avg.)12m
Turnover£8,439m
Profit before tax£-158m
Earnings per share-4.37p
Cashflow per share-0.83p
Cash per share11.23p

*Correct as at 9 Jan 2014

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.

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Key stats
Market capitalisation£7,367m
No. of shares out1,616m
No. of shares floating1,548m
No. of common shareholdersnot stated
No. of employees57518
Trading volume (10 day avg.)5m
Turnover£10,027m
Profit before tax£454m
Earnings per share28.20p
Cashflow per share56.65p
Cash per share13.01p

*Correct as at 9 Jan 2014

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.

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Key stats
Market capitalisation£5,525m
No. of shares out2,324m
No. of shares floating1,984m
No. of common shareholdersnot stated
No. of employees56177
Trading volume (10 day avg.)9m
Turnover£18,116m
Profit before tax£647m
Earnings per share26.57p
Cashflow per share41.52p
Cash per share11.29p

*Correct as at 9 Jan 2014

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.

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