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The Expert View: Thomas Cook, Debenhams and Hunting
by Harry Brooks on Jan 28, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, including Ladbrokes and Carpetright.
Our daily round-up of analyst recommendations and commentary, featuring Thomas Cook, Debenhams, Hunting, Ladbrokes and Carpetright.
UBS upgrades Thomas Cook to 'buy'
The remarkable rise of high-street travel agent Thomas Cook (TCG.L) isn't over yet, according to UBS analyst Alex Brignall, who has upgraded the shares from 'neutral' to 'buy'.
The shares are up more than 400% from their lows in November 2011, and they've gained over 100% since the 2012 update when the management talked positively about the turnaround in the business. Brignall said although there's been little concrete detail regarding the turnaround plans, the rise in the shares makes a meaningful capital increase a possibility.
'Historical precedent suggests that Thomas Cook has a good chance of successfully executing a £450 million rights issue, using funds for debt reduction, bolstering cash and deeper restructuring,' he said. 'As well as the profit uplift from restructuring, we believe lower financial risk (gearing falls by 70% in two years) could lead to a re-rating.'
Brignall's target price rises from 24p to 75p, with his historical discount falling to 10% from 15% due to the lower risk of a covenant breach.
Shares in the group closed at 58.9p on Friday, up 3.7p or 6.6%.
Debenhams has further to fall, Seymour Pierce warns
Last year's FTSE 100 darling Debenhams (DEB.L) will remain under pressure following disappointing Christmas trading, warns Seymour Pierce analyst Kate Calvert.
Calvert went to a capital markets afternoon on Thursday, which was all about 'delivering a compelling customer proposition'. Although the presentation had lots of detail about plans to improve the men's, women's, kids, lingerie, home and cosmetics ranges, the analyst was unmoved and reiterated her 'reduce' recommendation, with a reduced target price of 95p (was 100p).
'Management’s medium term targets are already assumed within our forecast and consensus,' she said. 'We expect UK profitability to remain under pressure as Debenhams has limited space growth over the next 18 months and the Oxford Street refurbishment costs to carry.
'We need evidence that the profitability of the UK business is stable before we become more positive as the company reported a fall in UK pre-tax earnings year-on-year in 2012.'
Shares in the group closed at 105p on Friday, up 0.6p or 0.6%.
Hunting set to gain from US oil industry rebound, Investec says
An imminent rebound in onshore oil drilling activity in the US means a brighter outlook for industry supplier Hunting (HTG.L), according to Investec analyst Stuart Joyner.
The optimism is based partly on a conference call with US oilfield services giant Baker Hughes last week, which suggested the market looks likely to bounce back in the first quarter of 2013.
'More importantly, there are clear signs of more feet being drilled with the same number of rigs – which means the amount of downhole consumables is continuing to rise even though demand for services is still weak,' Joyner added.
'Hunting has the best exposure of the UK listed service companies to the high-end downhole consumables market.'
The analyst's target price rises from 875p to 975p, based on 13x his 2013 earnings per share estimate.
Shares in the group closed at 845.9p on Friday, up 5.4p or 0.6%.
Canaccord backs Ladbrokes' Betdaq buy-out
Canaccord analyst Simon Davies has reiterated his 'buy' recommendation on Ladbrokes (LAD.L) following news that it's bought rival betting exchange market Betdaq.
Ladbrokes is paying £25 million upfront for Betdaq, with an earn-out based on 2016 profits. 'This represents an initial 10.7x FY12 earnings, given £2.4 million of pro forma profits, which looks cheap,' Davies said.
'While this is not the transformational deal that investors may still pine for (i.e. 888 etc) to turn around Ladbrokes’ ailing Online business, it represents a sensible move to buy a business where there are some relatively simple ways to add value.'
Shares in the group closed at 210.2p on Friday, up 4.1p or 2%.
Carpetright's moving in the right direction, Shore Capital says
Shore Capital analyst David O’Brien has reiterated his 'hold' recommendation on Carpetright (CPR.L) ahead of its third-quarter results on Tuesday.
'While trading conditions in the group’s key trading period are likely to have remained challenging, management is utilising a number of initiatives to improve the top-line and in turn, gain market share,' he said.
These initiatives will include modernisation of shops, expansion of the range of beds, improving service levels and growing the online business, he said.
Store closures will reduce overall year-on-year growth O’Brien said, but on a like-for-like basis he expects Carpetright to have delivered positive growth in the UK.
'We expect management to state that the business continues at least to trade in line with expectations and on that basis we think that the current and forecast pace of earnings recovery justifies the current high rating,' he added.
Shares in the group closed at 682p on Friday, up 21.5p or 3.3%.