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The Expert View: Burberry, Morrisons and M&S
by Harry Brooks on Oct 24, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Inmarsat and UBM.
Our daily round-up of analyst recommendations and commentary, featuring Burberry, Morrisons, M&S, Inmarsat and UBM.
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Burberry (BRBY.L)'s tech-savvy approach to luxury retailing means it'll continue to outperform its Western rivals in Asia, according to Credit Suisse.
'Burberry seems to be materially outperforming its peers in China owing to the continued evolution of its store portfolio, brand elevation and digital innovation,' said the analysts, who have an 'outperform' stance on the shares and a £17 target price.
'Investors may also be under-estimating how well placed the brand is among Chinese shoppers: they demand novelty/innovation, they are digital savvy and are generally younger than luxury consumers in the developed world, all of which play well to Burberry's strengths.'
In the short term the analysts said 'reasonable' first-half profit expectations and potential upside from new perfume launches would support the shares. Longer term, they like the brand's tech-focused approach and the chance to improve margins.
Shares in the group closed at £15.53p on Wednesday, down 3p or 0.2%.
Morrisons' customers feel the pinch
Squeezed wages for Morrisons (MRW.L)'s core customers will hold back progress at the supermarket, according to Jefferies, although they retain their 'buy' recommendation based on the promise of online sales growth.
'There is evidence that wage increases may have actually reduced to lower levels in recent weeks, and this is proving more impactful on industry growth than improving employment numbers,' analyst James Grzinic said. 'Morrisons' disproportionate exposure to more challenged consumers makes this dynamic particularly relevant for the group.'
Based on these concerns the analyst predicts a 2% decline in like-for-like sales in the third quarter. Longer term he believes Morrisons can turn things around.
'We believe that the completion of IT initiatives can provide Morrisons with a major new lever for cost efficiencies, providing the group with even greater resilience to current challenging top-line conditions. Progress on building a scale convenience offering and launching into .com should contribute over the mid-term.'
Shares in the group closed at 282.2p on Wednesday, down 1.5p or 0.5%.
M&S: food good, still problems with clothes
Marks & Spencers (MKS.L) continues to impress with its food business, while the clothing side of the business remains stalled despite the high-profile launch of the autumn-winter range.
Shore Capital's Clive Black recently attended an event with M&S's senior management in London which trumpeted the group's strength in food. The key points from the event were:
- M&S will remain focused on quality, while also innovating to meet customers' changing tastes. Franco-Vietnamese cuisine, Asian fusions and the new territory of Brazil and Peru all featured at the presentation.
- M&S outperforms in the north of Britain and is under-represented in many southern and eastern markets.
- There are no plans to sell food online for now.
Black said the event emphasised the strength in food, but clothes remains a worry ahead of the 5 November trading update. 'We are nervous about the performance of the UK apparel business despite the high profile launch of the autumn-winter ranges due to the mild weather. We stress that M&S needs to show underlying market share progress in UK apparel.'
The analyst retains a 'buy' stance on the shares based on its 'clear focus, self-help in general merchandising, growth on growth in food and the prospect of reduced capital expenditure'.
Shares in the group closed at 486.9p on Wednesday, down 1.7p or 0.4%.
Berenberg Bank initiates Inmarsat at 'hold'
Berenberg Bank has initiated satellite communications firm Inmarsat (ISAT.L) with a 'hold' recommendation.
'Inmarsat is a quality company with strong management and an extremely reliable satellite network,' analyst Robert Berg said.
'However, the stock is trading at 2014E enterprise value/earnings of 10.9x and price to earnings of 26x, at the peak of the historical range.'
Although this premium reflects future revenue growth from Inmarsat's Global Xpress global broadband operation, Berg said he can't see the shares heading up significantly for now. His target price stands at 775p.
Shares in the group closed at 723.6p on Wednesday, down 7.9p or 1.1%.
Westhouse downgrades UBM on weaker outlook
Westhouse has downgraded marketing business UBM (UBM.L) from 'buy' to 'add' following a less than encouraging trading update.
Tuesday's update showed revenue from continuing operations ahead by 0.6% in the first nine months of the year. Adjusted operating profit fell 4.3% in the year to date, although it's up 7.8% in the latest quarter.
However, Westhouse's Roddy Davidson flagged up the cautious note on short-term revenue trends as a cause for concern. 'Underlying revenue growth for the full year is now expected to be at or slightly below the bottom of previous guidance of 3%-5%,' the analyst noted.
'We have trimmed our FY13E pre-tax profit forecast by 3.5%, reduced our target price from 855p to 812p and moderated our recommendation from Buy to Add.'
Shares in the group closed at 676.1p on Wednesday, down 11.4p or 1.7%.