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The Expert View: Morrisons, SuperGroup and ASOS
by Harry Brooks on Oct 11, 2012 at 05:01
Our daily round-up of analyst recommendations and commentary, featuring Howden Joinery and Wolseley.
Our daily round-up of analyst recommendations and commentary, featuring Morrisons, SuperGroup, ASOS, Howden Joinery and Wolseley.
Oriel warns of a bleak second half for Morrisons
Jonathan Pritchard, analyst at Oriel, has warned that evidence of falling sales at supermarket giant Morrisons (MRW.L) is beginning to mount ahead of next month's interim results.
'Some disbelieved its assertion that second-half like-for-like (LFL) sales would be negative: there can be little doubt it will be now,' Pritchard said. Market researcher Nielsen and Kantar suggests that a tough second half is 'absolutely the reality' so far, he added, reiterating his 'sell' recommendation.
Having previously projected a 0.5% year-on-year fall in sales, he's now revised this to a 1.5% decline. His full-year forecast has also fallen from flat sales to a 0.75% slump.
'Management will doubtless take some action to mitigate the impact of lower salesgrowth,' Pritchard said. 'However the implication of -1.5% H2 LFL is that volumes will be down about 5% in the period, and protecting margins under these circumstances will be difficult.
'As a result we are taking 3% off our financial year numbers for this year (we’re now 2% below 52-week consensus on £895 million) and 6% off next year (down to £910 million).'
Shares in the group closed at 274p on Wednesday, down 4.9p or 1.76%.
Peel Hunt upgrades SuperGroup to 'hold'
John Stevenson, analyst at Peel Hunt, has upgraded fashion retailer SuperGroup (SGP.L) from 'sell' to 'hold', saying the installation of new systems will put paid to the short-term forecasting problems that have dogged the company over the past year.
Investor confidence in the group has been rocked by a series of profit warnings and 'arithmetical errors' in accounting. 'Beyond systems, there clearly has been a knowledge and experience gap throughout the organisation that was being held together by the drive of the founders and the trading momentum behind the business,' Stevenson said.
'Such gaps are now being addressed, although the process of systems and reporting developments will take months and years to fully implement.'
Shares in the group have gained 30% in the year to date, having almost halved to 264p by mid June and recovered strongly since. 'While we are cautious of rushing over the next speed bump, the new management team appears to be shaping SuperGroup’s outlook and providing focus on the next stage of development,' Stevenson concluded.
Shares in the group, for which Stevenson has a target price of 650p, up from 300p previously, closed at 661p on Wednesday, up 1.5p or 0.23%.
Seymour Pierce welcomes Bostock's appointment at ASOS
Freddie George, analyst at Seymour Pierce, has welcomed news that former M&S bigwig Kate Bostock is finally ready to join online fashion retailer ASOS (ASC.L), saying she'll add credibility to the business.
In a move George called 'the worst kept secret in retailing', Bostock, who was executive director of general merchandise at Marks and Sparks, will join ASOS in January. Bostock has been linked with the job at ASOS since last November. Her departure from M&S was announced in July, following its biggest quarterly sales drop for three and a half years.
She'll have responsibility for developing the company’s own-label ranges, which analysts have previously said holds the key to boosting margins at the business. George said that whether she fits with what he called the 'unique' culture at ASOS remains to be seen.
George has a 'hold' recommendation on the shares and a £19 target price. Full-year results to end of August are due on October 25.
ASOS is the second-biggest holding in the Standard Life Investment UK Smaller Companies fund, a star pick of Citywire Selection. The fund is run by Citywire AAA-rated Harry Nimmo.
Shares in the group closed at £22.86 on Wednesday, up 0.37p or 0.02%.
Canaccord initiates Howden Joinery with 'hold' recommendation
Graham Brown, analyst at Canaccord, has initiated coverage of kitchens and joinery business Howden Joinery Group (HWDN.L) with a 'hold' recommendation, saying the group's dominant market position and strong cash generation is reflected in the price of the shares.
'We like the strong market position (UK market leader with roughly 20% share) and the management’s use of strong cash generation to enhance value by reducing lease liabilities and grow the business organically,' the analyst said.
However, over the past year the shares have soared 48%, Brown said, beating the sector by 26%. Although first-half results showed strong revenue and profits growth, the first month of the second half has seen UK depot revenue down 0.9% year-on-year, he added.
Brown has a target price of 174p on the shares, which have a price-to-earnings ratio of 10.9x.
Shares in the group closed at 156.8p on Wednesday, down 0.1p or 0.06%.
JP Morgan lifts target price for Wolseley
Emily Biddulph, analyst at JP Morgan, has increased her target price for building products firm Wolseley (WOS.L), saying last week's full-year results pave the way for more special dividends and improving margins.
In the year ended 31 July revenues rose 3.8% year-on-year, while trading profits rose from £596 million to £658 million.
Having reviewed the figures Biddulph has trimmed her 2013 trading profit estimate by 2% in constant currency terms, almost exclusively on the back of a weaker Nordic market. Unhelpful projected foreign exchange movements account for another 2% decline, meaning she now forecasts 2013 pre-tax profits of £683 million, down from £748 million.
Nonetheless, Biddulph reiterated her 'overweight' recommendation and lifted her target price from £28.70 to £30.30. She expects the US market to continue to perform well, said the £350 million special dividend could be repeated next year, and added that margins in the US are set to rise as well.
Shares in the group closed at £26.54 on Wednesday, down 32.36p or 1.20%.