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The Expert View: Barratt, Debenhams, Merlin Entertainment
on Dec 19, 2013 at 05:00
A round-up of analysts’ commentary on shares, also including Cairn Energy and Informa.
Our daily round-up of analyst recommendations and commentary, featuring Barratt, Debenhams, Merlin Entertainment, Cairn Energy and Informa.
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Cairn Energy (CNE.L) continues to be a ‘buy’ for Jefferies, which believes the oil explorer ‘offers significant upside potential’.
Analyst Justin Jordan has placed a 385p target price on the shares, which traded at 261p yesterday, barely changed on the day and down 1.5% over the year.
Jordan’s positive outlook for Cairn comes from its multi-well exploration programme, the first results of which are due soon. It has six wells to drill in 2014, the first in Morocco.
Jordan believes Cairn’s shares have ‘already priced in a downside scenario, while its strategic options would remain strong and it offers significant upside potential, which it has the balance sheet strength to capture in a success scenario’.
Shares barely moved on Wednesday, closing at 259p, a decline of just 0.6p, or 0.23%.
Liberum has reiterated its ‘buy’ rating for property developer Barratt Developments (BDEV.L) following news of a joint venture that signals its expansion into large London developments.
Analyst Charlie Campbell set a target price of 387p for the shares as Barratt announced a new link-up with housing association London & Quadrant. L&Q manages over 70,000 homes in the capital, where it already has four joint ventures with Barratt at including Aldgate, Emirates Stadium, Fulham Riverside and Nine Elms.
Campbell said rival housebuilder Berkeley (BKG.L) had already made headway with large projects in London and Barratt would now be able to follow suit.
‘We believe that this signals a step up in this venture, which is appropriate as Berkeley has shown that there is most value in London in larger more complex schemes, and the joint venture structure allows Barratt to do more of these,’ he said.
Barratt shares added 2.5p to 338.6p. They have soared by 63% this year.
Shares closed up on Wednesday at 337p, a rise of 1.3p or 0.39%.
Barclays Capital has given Merlin Entertainment (MERL.L) an ‘overweight’ rating in its first assessment of the group since the flotation last month.
Analyst Vicki Stern set a target price of 390p for shares in the owner of Legoland and Madame Tussaud. They listed at 315p on 8 November.
‘The group has a global and structural growth story that we believe can deliver a base-case four year…compound annual growth rate of 9% [on earnings],’ said Stern. ‘Given the scope of the growth opportunity we believe the long-term growth rates can be just as attractive.’
She said the business was ‘characterised by strong brands operating in a growing segment with high barriers to entry’ and its track record showed a ‘fast-growing and resilient business’.
It also has the additional benefit of an experienced management team and while the shares are not ‘cheap’, Stern said there are ‘several factors that could mean that estimates prove too conservative’.
Merlin shares closed up slightly by 1p, or 0.28%, on Wednesday to end the day at 358p.
A late Christmas rush and tougher trading conditions means Peel Hunt is ‘struggling’ to take a more positive view on Debenhams (DEB.L).
Analyst John Stevenson maintained his ‘hold’ rating and target price of 100p for the department store group. He said the mild weather had left clothing retailers battling to match last year’s sales, which had been boosted by the wintry conditions.
‘Current conditions for apparel retailers are clearly tougher than last year, with more retailers on sale and greater emphasis on one-off events,’ said Stevenson. However, he pointed out that Debenhams had asked its suppliers to provide consumer discounts, which he said, ‘does not seem to be part of a planned supplier contribution, but rather a reaction to poor autumn/winter trading’.
Debenhams shares are now trading ‘on a material discount to every retailer in our universe, although, until earnings per share forecasts show signs of stability, we struggle to take a more positive view’, said Stevenson.
Debenhams shares closed at 78.4p on Wednesday, down 3.55%, or 4p.
Business publisher Informa (INF.L) is still a ‘hold’ for Investec as slightly lower full-year profits and a management ‘hiatus’ weigh.
A target price of 535p for the shares has been recommended by analyst Steve Liechti, who made ‘small tweaks downwards’ after the third quarter trading statement in October.
‘[We] remain hold/underweight given relatively low near-term sales growth, which implies tough profit progression, and current management hiatus which all looks unhelpful for the share price,’ he said. ‘Valuation appears full gives some uncertainty.’
It wasn’t all bad news for Informa, as Liechti said the company looks ‘clear post recent disposals’.
Shares closed at 527p on Wednesday, a rise of just 1p, or 0.19%.