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The Expert View: Whitbread, Inchcape and ASOS
by Harry Brooks on Dec 12, 2012 at 05:01
A roundup of some of the best analyst commentary on shares including Carpetright and Senior.
Our daily round-up of analyst recommendations and commentary, featuring Whitbread, Inchcape, ASOS, Carpetright and Senior.
Whitbread investors should wake up and smell the coffee, Investec says
James Hollins, analyst at Investec, has reiterated his 'sell' recommendation on hotel, coffee shop and restaurant operator Whitbread (WTB.L), saying the strength of the coffee business doesn't make up for weakness elsewhere.
In the third quarter like-for-like (LFL) hotel revenues rose 2.5% year-on-year and restaurants were up 1.9%. The Costa Coffee chain, meanwhile, powered ahead with 7.1% growth.
'Whitbread’s Q3 was in line with the group’s expectations, with the perennial strong Costa revenue growth partially offset by declining LFL trends in hotels and restaurants,' Hollins said.
'There is no change to our forecasts, although there is also no change to our view that the shares are pricing in an outlook for substantial group returns improvements that, Costa-aside (less than 25% of projected FY14E group earnings), we do not think exists.'
Shares in the group closed at £24.91 on Tuesday, up 63.24p or 2.6%.
UBS initiates Inchcape with 'buy' stance
Catriona O'Grady, analyst at UBS, has initiated coverage of automotive retailer and distributor Inchcape (INCH.L) with a 'buy' rating, saying its exposure to emerging markets bodes well.
O'Grady said Inchcape investors stand to gain from three areas of structural growth:
- Increasing car penetration in Inchcape’s emerging markets, where current rates are 26% below global averages;
- Further premiumisation, with 79% growth in premium sales across Inchcape’s emerging markets estimated by 2019;
- Defensive and highest-margin aftersales market, with O'Grady predicting this segment to account for 19% of sales and 54% of gross profit by 2016.
'Our sum-of-the-parts valuation implies a fair value of 526p. We calculate Inchcape delivers a 27% cross-cycle conversion ratio, attractive returns and is cash positive,' the analyst said.
Shares in the group closed at 444.05p on Tuesday, up 7.55p or 1.7%.
Peel Hunt warns of margin pressure at ASOS as UK sales soar
John Stevenson, analyst at Peel Hunt, has warned that bumper sales at online fashion retailer ASOS (ASC.L) must be weighed against a decline in margins.
First-quarter UK sales were up 24%, the strongest growth in over two years, and well ahead of Stevenson's 17% prediction. 'As with all apparel retailers, ASOS is benefiting from weak autumn comparatives and a seasonal pull-forward in demand, but also enjoyed strong growth from self-help initiatives,' the analyst said. He cited the group's focus on value and its ‘complete the look’ sales drive as examples.
However, he said the UK has margins that are about 7% below international levels, so the higher proportion of sales here does have some downside.
'While we anticipate UK growth will return back to single-digit levels, as pricing initiatives annualise and the one-off seasonal factors fade, if the UK continues to outperform significantly in Q2, then there is a risk of margin downgrades, although clearly this does not impact the longer-term investment case,' he said, reiterating his 'hold' recommendation.
Shares in the group closed at £25.66 on Tuesday, up 102.9p or 4.2%.
Seymour Pierce warns of long road to recovery for Carpetright
Freddie George, analyst at Seymour Pierce, has reiterated his 'sell' recommendation on Carpetright (CPR.L), saying the latest set of results do nothing to change his view that turning the business around is going to take a long time.
In the six months to the end of October group revenues fell 4.7% to £227.2 million, while underlying pre-tax profits soared 221% to £4.5 million. George said this figure was helped by margin improvement driven by better sourcing and less ‘give away’ promotional activity.
'Sales are now going in the right direction,' George said. 'Earnings should thus start to recover but only at a pedestrian rate and not, in our view, back to the record operating profit levels of over £60 million seen in 2004. Housing activity and the mortgage approvals market, the main drivers, are recovering from trough levels but are still expected to be relatively subdued over the next three years.'
Shares in the group closed at 667.5p on Tuesday, up 1p or 0.2%.
Shore Capital predicts in-line results from Senior
David O’Brien, analyst at Shore Capital, expects today's pre-close trading update from engineering business Senior (SNR.L) to be in line with expectations, and he reiterated his 'neutral' stance on the shares.
O’Brien noted that Senior's previous update at the end of October said growth in the large commercial aerospace market was strong, while the military aerospace, European passenger vehicle and North American heavy truck markets are suffering.
'What will be useful if the company provides an initial assessment of its recent acquisition, GAMFG precision, the manufacturer of precision components for fuel systems, pumps and hydraulic systems predominantly for the off-road heavy duty diesel engine applications and a growing presence in the aerospace sector,' O'Brien added.
Shares in the group closed at 201.9p on Tuesday, up 3.2p or 1.6%.