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The Expert View: Debenhams, RBS and Paragon
by Harry Brooks on Dec 17, 2012 at 05:01
A roundup of some of analyst commentary on shares including Moss Bros and Smiths Group.
Our daily round-up of analyst recommendations and commentary, featuring Debenhams, RBS, Paragon, Moss Bros and Smiths Group.
JP Morgan lifts target price for Debenhams
Georgina Johanan, analyst at JP Morgan, has increased her target price for Debenhams (DEB.L) based on potential for growth in the company's online operation.
'Debenhams has made strong progress in developing its omni-channel offering in recent years but, in our opinion, remains behind best in class,' she said.
A switch to its Peterborough warehouse for online clothes deliveries in spring 2013 should allow Debenhams to add a next-day delivery option, Johanan said, bringing it into line with other leading sites.
'Despite having outperformed by 63% this year the shares continue to trade at a discount to the sector of 25%,' she said. 'This is no longer justified in our view given the structural shift in UK retail and the significantly reduced debt burden. We raise our target price to 144p.'
Shares in the group closed at 114.7p on Friday, up 0.5p or 0.4%.
Investec says 'sell' RBS
Ian Gordon, analyst at Investec, has reiterated his 'sell' recommendation on Royal Bank of Scotland (RBS.L), warning its exposure to the Irish mortgage market means there's plenty more suffering ahead.
Thursday's data release from the Central Bank of Ireland gave an indication of what lies ahead. 'In Q3 2012, 90 day+ mortgage arrears (by value) increased to 15.1% (Q2: 14.1%, Q1: 13.3%) which, for the market as a whole, doesn’t even represent a slowing pace of deterioration,' Gordon said.
'RBS has £19 billion of Irish residential mortgages - 60% of which are already in negative equity.'
Although Gordon acknowledged that Ireland accounts for only 10.1% of RBS’s balance sheet, it has contributed 45% (or £9.3 billion) of group impairments over the past 11 quarters.
'It is disappointing that for all the many good things about the RBS turnaround story, the legacy of past mistakes will still be with us for several years to come.,' he added. 'As such, we regret that, for now, we must remain sellers.'
Shares in the group closed at 302.3p on Friday, up 2.1p or 0.7%.
UBS downgrades Paragon
Anton Kryachok, analyst at UBS, has downgraded buy-to-let lender Paragon (PAG.L) from 'buy' to 'neutral' following a surge in the shares over the past six months.
Paragon's successful share placement and rising dividends have helped the shares gain more than 70% since May, Kryachok noted.
However, following this rerating the investment debate over Paragon will essentially come down to the pace of buy-to-let lending and the company's ability to improve its return on equity, Kryachok said. These are areas where he expects 'solid but gradual' progress.
Shares in the group closed at 256.2p on Friday, down 5.8p or 2.2%.
Seymour Pierce raises target price on Moss Bros
Freddie George, analyst at Seymour Pierce, has increased his target price for smart-clothes specialist Moss Bros (MSB.L) following an encouraging trading update.
In the 19 weeks to 8 December retail like-for-like sales rose 3.7% year-on-year, with sales in the 45 weeks to 8 December 4.9% ahead of last year. Margins also improved as a result of a fall in the price of cotton.
'Following this update, we are raising our FY13 pre-tax profit forecast from £1.5 million to £1.8 million taking earning per share up from 1.5p to 1.8p to bring them more into line with consensus,' George said.
'The turnaround of Moss Bros, the UK’s No 1 branded suit specialist continues on a positive track. However, we believe the recovery is fully reflected in the rating of 31.9x FY13 forecast earnings declining to 19.1x in the following year. We reiterate our Hold recommendation but upgrade our price target from 45p to 55p.'
Shares in the group closed at 59.9p on Friday, up 1.9p or 3.3%.
Deutsche Bank upgrades Smiths Group to 'buy'
Martin Wilkie, analyst at Deutsche Bank, has upgraded engineering business Smiths Group (SMIN.L) from 'hold' to 'buy', saying worries about profit margins and excessive market expectations regarding disposals are now receding.
'We think that 2013 could allow Smiths to outline new financial targets, now that cost programs are underway in the underperforming divisions, and that US governmental spending uncertainty should be resolved in Q1,' he said.
'Separately, we think that the template of the Invensys Rail disposal to Siemens suggests disposals for Smiths could come sooner than we'd previously thought.'
Wilkie's target price rises from £11.50 to £13.35.
Shares in the group closed at £11.45 on Friday.