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The Expert View: Tesco, Cape and Next
by Harry Brooks on Mar 07, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Associated British Foods and Debenhams.
Our daily round-up of analyst recommendations and commentary, featuring Tesco, Cape, Next, Associated British Foods and Debenhams.
Tesco emerges from the wilderness
After almost two years of corporate self-examination, Tesco (TSCO.L) has made it through to the other side, according to Shore Capital analyst Clive Black, who has upgraded the shares from 'hold' to 'buy'.
'From the context of a necessity to sustainably stabilise its market share in UK grocery, its core, which we believe is commencing, management can now press on with greater purpose in driving out free cash flow and so more demonstrably embrace shareholder-friendly initiatives,' Black said.
Although the analyst expects the cash flow resulting from these plan to be 'more of a trickle than a flood' at first, he said the important thing was the new-found direction at the group.
'with a settled management team and a managing director of the UK in place, stabilisation of the core chain appears to be under way. Along with an exit from Japan and the USA, management can embrace a new course; a more shareholder-friendly journey,' he added.
Shares in the group closed at 380.6p on Wednesday, up 8.4p or 2.3%.
An ‘inflection point’ for Cape
Cape (CIU.L), the struggling building services supplier to energy firms, may be at an ‘inflection point’, says Canaccord Genuity analyst Michael O’Brien.
On Wednesday the company revealed that full-year profits had slumped by two thirds due to problems in Algeria and Australia.
But the results came alongside what Joe Oatley, Cape’s chief executive, described as a ‘root and branch review of our balance sheets’.
O’Brien said: ‘We believe that the risk reward ratio for investors has improved substantially on the back of these results and evidence that the contract base is now, in essence ''clean''.’
Canaccord has raised its target price on the shares from 254p to 303p and upgraded the company from ‘speculative buy’ to a full-blooded ‘buy’.
Shares in the group closed at 264.6p on Wednesday, up 32p or 14%.
Cantor Fitzgerald expects another strong update from Next
Cantor Fitzgerald analyst Kate Calvert has increased her target price for clothing retailer Next (NXT.L) ahead of what she expects to be another strong set of results on 21 March.
'We expect Next’s full-year results on 21 March to show another year of double-digit earnings growth in-line with management’s longer term forecast,' she said.
'While a mature business in terms of number of stores, NEXT continues to drive growth by pursuing marginal gains in its offer, service and efficiency which enhances its already highly profitable multi-channel business.'
Calvert's target price rises from £35 to £40, but she held off lifting her 'hold' recommendation. 'We believe the revaluation of the shares has gone far enough, with the shares having been re-rated from single digit to a 2014 price to earnings of 13x,' she added.
Shares in the group closed at £42.03 on Wednesday, up 23.4p or 0.6%.
BNP Paribas downgrades Associated British Foods
BNP Paribas analyst Jeff Stent has downgraded Associated British Foods (ABF.L) from 'neutral' to 'underperform' following a strong stretch for the shares.
'Both this year and last, ABF has been the best performer within our sector coverage, this performance principally stemming from the re-rating of Primark,' Stent said, referring to the success of the group's cut-price clothing chain.
Although the analyst said he doesn't see material downside to 2013/2014 consensus earnings estimates, he said the premium valuation of the shares, combined with a toughening outlook in its sugar operations, means it's time for a downgrade.
Shares in the group closed at £18.44 on Wednesday, down 21.8p or 1.2%.
JP Morgan downgrades Debenhams
JP Morgan analyst Georgina Johanan has downgraded high-street department store Debenhams (DEB.L) from 'outperform' to 'neutral' in the wake of Monday's profit warning.
The shares tanked more than 14% following the announcement after Debenhams said trading in January had been ‘severely disrupted’ by heavy snow fall.
'Following the recent profit warning, we see near term management guidance as leaving little room for error,' Johanan said. 'Given the earnings trajectory in recent months and changes to guidance, our view is that the group once again needs to become consistent in its delivery on forecasts in order for investor faith to be restored.
'Ahead of evidence that the group is back on this track, and with near term risks finely balanced, we reduce our recommendation to neutral.' Johanan's target price falls from 137p to 95p.
Shares in the group closed at 83.7p on Wednesday, up 1.1p or 1.4%.