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The Expert View: M&S, Bunzl and ABF
by Harry Brooks on Feb 26, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Wolseley and British American Tobacco.
Our daily round-up of analyst recommendations and commentary, featuring M&S, Bunzl, ABF, Wolseley and British American Tobacco.
M&S still has everything to play for, Shore Capital says
Reports that Marks and Spencer (MKS.L) is losing market share in the fashion segment to rivals Primark and Zara don't detract from the longer-term 'buy' case, according to Shore Capital analyst Clive Black.
In the 24 weeks to January 20 UK fashion sales fell 1.3% at the chain, and it lost 0.4% of market share, according to industry data from Kantar Worldpanel, as reported in the Sunday Times. Primark and Zara both picked up the slack, according to the report, with double-digit sales growth.
'Such an outcome does not come as a surprise to us, nor, we suspect will it to the market as a whole,' Black said on the report. 'We make this assertion because M&S reported trade to the end of December 2012 that revealed poor general merchandise trading in the UK and a loss of market share. We would not expect a material improvement in share performance the interim period.'
Black believes M&S investors will be rewarded for their patience. 'We believe that there are virtues to the M&S investment case, most notably a good performance from its food division, better thinking in international markets and small but interesting developments in beauty & home categories.'
Shares in the group closed at 369.5p on Monday, down 8.2p or 2.2%.
Cantor Fitzgerald downgrades Bunzl to 'sell'
Cantor Fitzgerald analyst Caroline de La Soujeole has downgraded outsourcing group Bunzl (BNZL.L) from 'reduce' to 'sell' in spite of a strong set of annual results following a strong few months for the shares.
2012 results showed a 6% rise in sales to to £5.4 billion, and adjusted pre-tax profit was up 8% to £323.9 million, ahead of de La Soujeole's top-of-the-range estimate of £318.2 million.
However, the 8% outperformance of the shares over the past month relative to the sector leaves them looking pricey, according to the analyst.
'Whilst Bunzl’s business model exhibits good defensive qualities, we do not feel that its current growth prospects warrant a premium valuation,' she said. 'In addition, with more than 50% of group sales generated from North America, Bunzl’s reported results could be adversely affected by the weakening sterling. We also believe that Bunzl’s balance sheet offers less flexibility with net debt to equity at 84%.'
Shares in the group closed at £12.20 on Monday, down 0.4p or 0.03%.
Good news at ABF already price in, Canaccord warns
Investors shouldn't be too impressed by yesterday's trading update from Associated British Foods (ABF.L), according to Canaccord analyst Alicia Forry, who reiterated her 'sell' recommendation.
Although the profit guidance was unchanged from the previous interim management statement issued a month ago, Forry said there were a number of niggles. 'Primark like-for-like (LFL) sales moderated from the low double digit rate observed in Q1 to – probably – mid single digits in the last two months, since H1 LFL are expected to be +7%,' she said. 'However, consensus was expecting +9% LFL in H1, so we suspect the market may be disappointed by these Primark figures.'
Furthermore, she warned that strong profit growth over the first half of the year probably can't be maintained. 'It is already known that profit growth in 2013 will be ''heavily weighted towards the first half'' given the easier comps,' she said.
'The shares are pricing in too much at these levels and we stick with our Sell recommendation.'
Shares in the group closed at £18.18 on Monday, down 11.9 or 0.7%.
JP Morgan sees room for 30% uplift for Wolseley
The market's failing to price in potential earnings upgrades and special dividends at plumbing supplies specialist Wolseley (WOS.L), according to JP Morgan analyst Emily Biddulph.
Although she said the company's US exposure is now in the price, the valuation of the shares (12.9x projected 2014 earnings) doesn't encapsulate potential upside she places at around 30%.
'On our forecasts, the Group could pay out special dividends over the next three years with a present value of 460p/share (using our base case estimates that assume no acceleration in US growth and no French disposal),' she said.
'We are confident in the group’s ability and willingness to generate and return spare cash, given management’s conservative M&A policy (currently about £150 million a year of bolt-ons) and FY12’s return of £350 million.'
The analyst's target price rises from £31.50 to £33.50, and she reiterated her 'overweight' recommendation.
Shares in the group closed at £30.54 on Monday, up 24.6p or 0.8%.
'Buy' British American Tobacco, Deutsche Banks says
2013 is shaping up to be a year of recovery for British American Tobacco (BATS.L), according to Deutsche Bank analyst Warren Goldblum, who has reiterated his 'buy' recommendation ahead of Thursday's full-year results.
'2012 was an unusually subdued year for BAT, as revenue growth slowed (albeit after a bumper 2011), FX dampened EPS growth, and the shares derated following a revival of regulatory fears,' he noted.
'We expect a better 2013: revenue growth should stabilise, FX is looking more positive and we expect regulatory fears to recede somewhat as the year progresses. We expect this stock to be a consistent deliverer of attractive total returns.'
Goldblum expects organic revenue growth of 3.9% for the year, and a dividend of 134.0p (91.8p final).
Shares in the group closed at £34.38 on Monday, down 14.5p or 0.4%.