The Expert View: Morrisons, Aggreko and Home Retail Group

Our daily round-up of analyst recommendations and commentary, featuring Morrisons, Aggreko, Home Retail Group, Thomas Cook and Booker Group.

Key stats
Market capitalisation	£6,371m
No. of shares out	2,337m
No. of shares floating	1,979m
No. of common shareholders	not stated
No. of employees	57169
Trading volume (10 day avg.)	9m
Turnover	£17,663m
Profit before tax	£690m
Earnings per share	26.03p
Cashflow per share	38.86p
Cash per share	9.52p

*Correct as at 14 Mar 2013

'Sell' Morrisons, Shore Capital says

Yesterday's full-year results from Morrisons (MRW.L) highlights the significant challenges ahead for the UK's fourth largest supermarkte group, according to Shore Capital analyst Clive Black, who has a 'sell' recommendation on the shares.

Pre-tax profits slumped 7% to £879 million, although sales were up 3% to £18.1 billion on the back of more store openings. The big announcement was that it will launch its long-awaited online service next year with Ocado, sending its shares up 4.1p or 1.5% higher at 275.7p.

Black noted that Morrisons could stand to gain from the 'horse gate' scandal, as its tight control over its supply chain meant it avoided feeding its customers the wrong meat.

'If this leads to an end to the downgrade cycle then we may have a basis to upgrade our recommendation,' he said. 'However, for now we remain cautious, and so retain our SELL recommendation.'

Key stats
Market capitalisation	£5,272m
No. of shares out	269m
No. of shares floating	233m
No. of common shareholders	not stated
No. of employees	4262
Trading volume (10 day avg.)	1m
Turnover	£1,583m
Profit before tax	£276m
Earnings per share	103.88p
Cashflow per share	194.54p
Cash per share	8.60p

*Correct as at 14 Mar 2013

Aggreko powers ahead

Cantor Fitzgerald analyst Caroline de La Soujeole has reiterated her 'buy' recommendation on portable power equipment supplier Aggreko (AGGK.L) on news it has won a contract to supply power to Mozambique and Namibia.

The deal will see Aggreko supply 122MW of gas-fuelled power for at least two years to Electricidade de Mocambique, the Mozambique power utility, and NamPower, the Namibian power utility.

The total value of the project is likely to be over $200 million, de La Soujeole said. 'This is an exciting development and suggests that the potential of Aggreko’s Mozambique facilities is greater than we had previously envisaged,' the analyst said.

'We reiterate our BUY recommendation and target price of 2,200p.'

Shares in the group closed at £19.41 on Thursday, up 102p or 5.6%.

Key stats
Market capitalisation	£1,210m
No. of shares out	813m
No. of shares floating	804m
No. of common shareholders	not stated
No. of employees	50254
Trading volume (10 day avg.)	2m
Turnover	£5,583m
Profit before tax	£73m
Earnings per share	9.06p
Cashflow per share	24.81p
Cash per share	24.91p

*Correct as at 14 Mar 2013

Panmure Gordon says 'sell' Home Retail Group

Investors shouldn't get carried away by yesterday's strong trading update from Home Retail Group (HRG.L), Panmure Gordon analyst Philip Dorgan has warned.

Like-for-like sales rose 5.2% year-on-year, and the Argos chain owner now expects full-year pre-tax profits to hit £90 million, compared with the consensus estimate of about £84 million.

But Dorgan believes the group has underlying problems that aren't going away. 'We think that Argos’s turnaround will take too long and that Homebase is heading towards losses,' he said.

'We also believe that many traditional retailers are making a virtue out of a necessity in that they have a lot of stores and so they are building bricks and mortar into an online model. Long term, we think that this will fail.

'The shares currently trade at a ''recovery'' price-to-earnings ratio of 21x 2014 forecasts. We just don’t believe that the recovery is going to happen, given the complexity of the issues and the speed of change in the market place,' he added, reiterating his 'sell' recommendation.

Shares in the group closed at 148.7p on Thursday, up 15.8p or 11.9%.

Key stats
Market capitalisation	£1,065m
No. of shares out	905m
No. of shares floating	884m
No. of common shareholders	not stated
No. of employees	33593
Trading volume (10 day avg.)	23m
Turnover	£9,491m
Profit before tax	£-586m
Earnings per share	-67.20p
Cashflow per share	-44.70p
Cash per share	52.00p

*Correct as at 14 Mar 2013

Morgan Stanley bumps up target price for Thomas Cook

Thomas Cook (TCG.L)'s new growth strategy should see earnings hit at least £400 million by 2015, according to Morgan Stanley analyst Jamie Rollo, who has increased his target price on the shares from 100p to 150p.

Wednesday's update on the turnaround strategy said the group will focus on 'personalised holiday experiences through a high-tech, high-touch approach'. It also said another £50 million of cost savings have been identified, on top of the £300 million already in train.

Rollo said the update provided enough information for a new earnings forecast. 'Taking 2012 adjusted earnings before interest and taxes (EBIT) of £120 million, £290 million of remaining cost out (covering the 5% UK margin target and +150 basis points to group gross margin), reversal of 2012’s £52 million losses from France/Canada/Russia, £30 million EBIT from new product, and allowing for expectation of further cost cuts, it seems like the company thinks £500 million EBIT is achievable. We raise our 2015 estimate from £300 million to £400 million.'

Shares in the group closed at 123p on Thursday, up 22.5p or 22.3%.

Key stats
Market capitalisation	£2,156m
No. of shares out	1,725m
No. of shares floating	1,392m
No. of common shareholders	not stated
No. of employees	9375
Trading volume (10 day avg.)	2m
Turnover	£3,933m
Profit before tax	£75m
Earnings per share	4.74p
Cashflow per share	5.55p
Cash per share	4.05p

*Correct as at 14 Mar 2013

Booker Group wins nod on Makro buy-out

Investec analyst Nicola Mallard has put her target price for food and drug supplier Booker Group (BOK.L) under review while she assesses how the numbers will look once it has bought out rival firm Makro.

'Provisional findings have been released from the Competition Commission and it appears that it is set to give full clearance to the Makro acquisition,' Mallard said. 'The news could not be better, with the Competition Commission provisionally clearing the Makro deal, seemingly without the need to dispose of any of the 30 branches.'

Makro is still loss-making at the moment, but Mallard said the acquisition should play in Booker's favour longer term. 'The group’s initial decision to buy Makro (unconditionally) has been vindicated and the management can now get to work putting this new space to (profitable) work,' she said. Investec has a 'buy' recommendation on Booker.

Shares in the group closed at 125p on Thursday, up 9p or 7.8%.