The Expert View: Morrisons, William Hill and Big Yellow
A roundup of some of the best analyst commentary on shares, including Nichols and Imagination Technologies.
Shore Capital warns more downgrades ahead for Morrisons
Clive Black, analyst at Shore Capital, has put his forecasts for Morrisons (MRW.L) under review and reiterated his 'sell' stance following disappointing Christmas trading figures.
Like-for-like sales in the six weeks to 30 December fell 2.5%, worse than the 2.1% fall in its third quarter. Black noted that once inflation is factored in the real figure is more like 4%.
'To add to our worries about the trading performance, and so the financial out-turn for Morrison's, we must not lose sight of the fact that the group is vertically integrated and, as such, the burden of negative operational gearing is greater than may be the case for some of its peers,' he added. 'Accordingly, ahead of the conference call with management we are putting our profit forecasts under review, with the expectation of a further downgrade to estimates.'
Over at Seymour Pierce Kate Calvert also reiterated her 'reduce' recommendation, saying ‘the failure of a sales recovery despite soft comparables [with last year] is more concerning for FY14 [2014 calendar year] and it is becoming more inevitable that profits will decline again year-on-year’.
Shares in the group closed at 257.9p on Monday, up 1p or 0.4%.
Nomura lifts target price for William Hill
Richard Stuber, analyst at Nomura, has increased his target price for gambling shop operator William Hill (WMH.L) having incorporated its acquisition of Sportingbet's Australian outfit into his projections.
The acquisition, valued at a net £454 million, should be completed by the end of the first quarter, Stuber said. The valuation represents a historic enterprise value/earning ratio of 13x, and remains subject to shareholder approval and an Australian licence.
Stuber expects revenues from Australia to rise 20% this year, and he called the buy-out an 'astute deal'. His target price rises 21% to 315p. However, this remains significantly behind the current price of the shares, so Stuber retains his 'reduce' stance.
Shares in the group closed at 348.3p on Monday, down 3.2p or 0.9%.
UBS initiates Big Yellow with 'buy' recommendation
Harry Stokes, analyst at UBS, has initiated coverage of self-storage business Big Yellow (BYG.L) with a 'buy' recommendation, citing its continued growth during the recession as evidence of the solidity of its business plan.
'The company generated an earnings compound annual growth rate of 8% between FY07 and FY12, and, based on the cost of its assets, an average return on equity of 12.6%, reflecting a range from 9.6% to 15.4% over the five-year period,' he said.
'Big Yellow has taken a strategic decision to pause development and focus on intensifying returns from existing stores: over the next five years, we forecast occupancy rising to 76% from 67%, 8% annual average growth in operating cash flow, and 18% annual average dividend per share growth.'
Stokes has a target price of 395p on the shares.
Shares in the group closed at 364.4p on Monday, up 1.9p or 0.5%.
Canaccord bumps up target price for Nichols
Wayne Brown, analyst at Canaccord, has increased his target price for soft-drinks maker Nichols (NICL.L) following an encouraging trading update, but he retains his 'hold' recommendation, saying the shares are up with events.
In the second half of the year total sales rose 9% year-on-year to £108 million, beating Brown's forecast of £107.8 million.
'Whilst this represents an H2 slowdown to 8% from +10% in H1 one should set this in context that the group has achieved a three year compounded growth rate of +42.8%,' Brown said. 'The group has achieved material out-performance versus the UK soft drinks market which grew 3.2% in value (for the year to 8 December).'
Brown's target price rises 14% to 820p, but this is still some way below the current level.
Shares in the group closed at 858p on Monday, up 33p or 4%.
Investec drops target price for Imagination Technologies
James Goodman, analyst at Investec, has reduced his target price for chip designer Imagination Technologies (IMG.L) following a tough few months for the shares.
The shares are down about 25% since their September high, despite the sector as a whole making gains. This decline came amid fears of declining royalty rates, and recently increasing costs have become another worry for investors.
Although Goodman said the risks are real, the shares look oversold: 'Concerns over royalty rates are valid, but we see MediaTek business as accretive and are confident that rates will stabilise in H2. Modest upside, given the stock’s volatility, to our TP of 490p (from 498p - remaining at 30x FY14E earnings per share) keeps us at Hold, but we see near- term risks as positive.'
Shares in the group, for which Goodman has a target price of 490p, down from 498p previously, closed at 456p on Monday, up 18p or 4%.