The Expert View: Burberry, ARM Holdings and Aurum Mining

Our daily round-up of analyst recommendations and commentary, featuring Burberry, ARM Holdings, Aurum Mining, Ocado and Halfords.

Key stats
Market capitalisation	£6,109m
No. of shares out	442m
No. of shares floating	436m
No. of common shareholders	not stated
No. of employees	7991
Trading volume (10 day avg.)	1m
Turnover	£1,857m
Profit before tax	£264m
Earnings per share	59.33p
Cashflow per share	79.43p
Cash per share	124.65p

*Correct as at 15 Jan 2013

Solid results support 'buy' on Burberry, Seymour Pierce says

Healthy Christmas trading figures should reassure investors that luxury clothing company Burberry (BRBY.L) remains a compelling buy, Seymour Pierce analyst Kate Calvert has said.

In the three months to 31 December underlying revenues rose 9% year-on-year, and retail revenues rose 13%, with comparable store sales up 6%. Scarves, mens tailoring and accessories were cited as the big sellers. Wholesale revenues, however, fell 5%.

'These results should reassure and improve sentiment after last September's blip in trading when Burberry was affected by the industry slowdown rather than anything company specific,' Calvert said.

'We still consider Burberry a strong long term growth story with significant geographical and product mix opportunities. Given the recent rally in the shares, they may consolidate around this area short term.'

Calvert reiterated her 'buy' recommendation and £15 target price.

Shares in the group closed at £13.85 on Tuesday, up 60.3p or 4.6%.

Key stats
Market capitalisation	£11,554m
No. of shares out	1,379m
No. of shares floating	1,370m
No. of common shareholders	not stated
No. of employees	2368
Trading volume (10 day avg.)	4m
Turnover	£492m
Profit before tax	£113m
Earnings per share	8.19p
Cashflow per share	9.14p
Cash per share	25.60p

*Correct as at 15 Jan 2013

Morgan Stanley downgrades ARM Holdings

ARM Holdings (ARM.L) is the best in its class, according to Morgan Stanley analyst Francois Meunier, but the price of the shares has prompted him to downgrade the chipmaker from 'overweight' to 'equal weight'.

A year ago investors were worried about competition from rival chip designer Intel, Meunier said, but things are looking much better now. 'We believe the current share price implies a near perfect trajectory in ARM’s market share and royalty rate for the next two years,' he said.

However, the shares have risen along with expectations of growing market share. 'Everything we were hoping for 12 months ago is now taken for granted due to strong news flow, including the iPad mini launch, disappointing Ultrabook launch and weak PC sales. It will be difficult for news flow to improve from here,' he said.

'While we remain very impressed by ARM and its partners’ progress, we believe the current absolute share price is not attractive enough for new money, and we downgrade the shares to equal weight.'

Shares in the group closed at 838.5p on Tuesday, down 34.5p or 4%.

Key stats
Market capitalisation	£4m
No. of shares out	118m
No. of shares floating	83m
No. of common shareholders	not stated
No. of employees	4
Trading volume (10 day avg.)	0m
Turnover	£0m
Profit before tax	£-1m
Earnings per share	-0.92p
Cashflow per share	-0.91p
Cash per share	1.12p

*Correct as at 15 Jan 2013

Aurum Mining: a ‘speculative’ investment in Spanish gold

Probably not for the faint-hearted this one. WH Ireland analyst Paul Smith has put a ‘speculative buy’ recommendation on Aurum Mining (AUR.L), arguing that ‘the shadows of the past in Kyrgyzstan and its retreat into a shell company are over’ as the company has a clear strategy to profit from projects to mine gold and tungsten in Spain.

The AIM listed exploration and development company had to retreat from a gold and copper project in the Kyrgz Republic, selling it in 2010, and has since then gone through a complete restructuring.

‘Aurum is effectively a new company and we do not believe the market fully appreciates that it has come out of its shell status and become an operating company with tangible projects,’ according to Smith, adding that results from the company’s joint gold venture in Spain have been ‘very encouraging’.

WH Ireland has a 4.7p target price on the shares.

Shares in the group closed at 3.5p on Tuesday.

Key stats
Market capitalisation	£471m
No. of shares out	559m
No. of shares floating	352m
No. of common shareholders	not stated
No. of employees	5180
Trading volume (10 day avg.)	1m
Turnover	£598m
Profit before tax	£0m
Earnings per share	-0.10p
Cashflow per share	5.03p
Cash per share	16.50p

*Correct as at 15 Jan 2013

Ocado will struggle to deliver, Shore Capital warns

Although Ocado (OCDO.L) shares look set to be a bit less volatile this year, structural pressures on the business model mean Shore Capital analyst Clive Black remains sceptical.

Following a successful capital raising in November Ocado is well placed to finish off its new CFC2 distribution centre and build its margins. 'However, for Ocado to be in the position that it has no debt and rising cash balances to explore shareholder friendly initiatives requires a stepped change in operating margins,' Black said, reiterating his 'sell' stance.

Although Black said it wouldn't be right to suggest Ocado won't be able to improve its margins, its inherently high fulfilment costs given the distance between its distribution hubs and customers is problematic.

'The company has to prove that it can substantially build margins, on which we remain sceptical, and so build earnings that bring the share out of the stratosphere in valuation terms. Whilst 'never saying never', we remain equally sceptical that such a day will ever be reached,' he said.

Shares in the group closed at 85.5p on Tuesday, up 1.4p or 1.7%.

Key stats
Market capitalisation	£665m
No. of shares out	199m
No. of shares floating	197m
No. of common shareholders	not stated
No. of employees	12051
Trading volume (10 day avg.)	0m
Turnover	£863m
Profit before tax	£68m
Earnings per share	34.05p
Cashflow per share	46.99p
Cash per share	6.72p

*Correct as at 15 Jan 2013

Investec says 'buy' Halfords

Strong demand for car maintenance suggests the new service-led strategy at Halfords (HFD.L) is the right approach, according to Investec analyst Bethany Hocking.

In the 15 weeks to 11 January total retail sales crept up 0.1%, while sales in the cycling part of the business fell 1.6% in like-for-like terms. However, Halfords' 'Wefit' outfit saw sales surge a record 39.5%. Based on sales in the year so far, pre-tax profit guidance has been increased from £66 million-£70 million to £68 million-£72 million.

'We reiterate Buy and point to the record fitting penetration as proof that the service-led strategy is the right one to take,' Hocking said.

Shares in the group closed at 334.1p on Tuesday, up 5.6p or 1.7%.