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The Expert View: Debenhams, Centrica and British American Tobacco
by Harry Brooks on Mar 05, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Faroe Petroleum and Ithaca Energy.
Our daily round-up of analyst recommendations and commentary, featuring Debenhams, Centrica, British American Tobacco, Faroe Petroleum and Ithaca Energy.
Snow-hit Debenhams issues profit warning
Yesterday's profit warning from Debenhams (DEB.L) raises some tough questions about the retailer's strategy and the sustainability of its UK profits, Cantor Fitzgerald analyst Kate Calvert has warned.
The shares tanked more than 14% yesterday after the UK’s second-largest department store operator said trading in January had been ‘severely disrupted’ by the heavy snow fall. The group now expects first half profits of around £120 million, around £10 million less than analysts had expected.
'This is the second downgrade on Debenhams this year, which starts to raise questions about its strategy and the sustainability of its UK profits short term,' Calvert said, reiterating her 'reduce' stance on the shares.
'Management’s medium-term targets were already assumed within our forecast and consensus and UK profitability was expected to remain under pressure. Debenhams has limited space growth over the next 18 months and the Oxford Street refurbishment costs to carry. To become more positive, we need evidence of stable UK profits.'
Shares in the group closed at 81p on Monday, down 13.5p or 14.2%.
SocGen upgrades Centrica to 'buy'
SocGen analyst Ashley Thomas has upgraded energy company Centrica (CNA.L) from 'hold' to 'buy' following what he called 'reassuring' full-year results.
Last week's 2012 results showed a 5% rise in adjusted earnings year-on-year to £1.4 billion, with total adjusted operating profits up 14%. The proposed full-year dividend of 16.4p is up 6% on a year ago.
'Centrica offers many attractive investment features largely unavailable across the rest of the European utilities sector,' Thomas said.
'A relatively low valuation (vs UK peers); a strong balance sheet with a material margin against targeted balance sheet metrics; around £500 million surplus cash generation per annum to be deployed towards bolt on acquisitions or additional share buybacks; and a diverse portfolio of investment opportunities and a management team that has demonstrated financial discipline.'
Shares in the group closed at 362p on Monday, up 6.5p or 1.8%.
Citi lifts target price for British American Tobacco
Citi Research analyst Adam Spielman has increased his target price for British American Tobacco (BATS.L), saying its defensive qualities continue to be attractive.
'Since the middle of last year, the dominant theme in tobacco has been the increasing problems in Europe, both the accelerating volume declines and the increasing regulatory threat,' Spielman said.
'However the EU is only 18% of BAT’s profit, and in 2H12 BAT generated 10% organic earnings growth (8% for FY12), which is about as good as almost any other large-cap consumer staples company in Europe.'
The analyst cited the group's defensive growth profile, large exposure to emerging markets, potential for cost-savings and attractive yield as the main reasons for his 'buy' recommendation. His target price rises from £37.85 to £40.
Shares in the group closed at £35.62 on Monday, up 54p or 1.5%.
Nomura says Faroe Petroleum's a buy
Faroe Petroleum (FPM.L) is a 'buy' for Nomura analyst Tom Robinson, based on the potential of its frontier assets coupled with the downside protection of its core holdings.
'With a share price decline of about 22% (the Stoxx Europe 600 Oil & Gas Price Eur index down about 13%) over the past 12 months, the shares now trade at a modest 7% premium to core net asset value,' the analyst said.
'As such, we argue little is priced in for: 1) fully funded exploration in 2013, which could be worth 27/152p (risked/unrisked); and 2) more visibility on a contingent asset base that we estimate is worth 32p/share. Maintain Buy.'
Shares in the group closed at 145p on Monday, up 1p or 0.7%.
Westhouse upgrades Ithaca Energy to 'buy'
The market is undervaluing the potential of Ithaca Energy (IAE.L)'s acquisition of Valiant Petroleum, according to Westhouse analyst Dragan Trajkov, who has upgraded the shares from 'add' to 'buy'.
'Ithaca’s shares have pulled back significantly since it announced the acquisition of Valiant Petroleum,' he said. 'While we can understand the market might be nervous about the perceived acquisition price on 2P [proven plus probable] reserve metrics and the potential share dilution, the fact that the investment could pay for itself in less than two years seems to have been overlooked.
'By the end of 2013 we believe this acquisition could make Ithaca an attractive target in its own right, with 25,000 barrels of oil equivalent a day of production,' he added.
Shares in the group closed at 116.6p on Monday, down 0.4p or 0.3%.