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Broker Round-up, including Debenhams, Home Retail, Whitbread, National Express, WPP

October 25 2012, 11:34am

City analysts were found shopping for a bargain today as retail stayed in focus.

Among those browsing Debenhams (LON:DEB) after it buoyed the sector with a 4.2% rise in full-year pre-tax profits was Panmure Gordon.

Debenhams has outperformed the UK retail sector by 60% so far in 2012 but the valuation gap between the two is closing, it said.

The broker believes the department store chain’s shares trade on 10.6x earnings for 2013.

“We think that the combination of e-commerce driven top-line growth and a new tranche of the share buyback will help the shares to maintain this valuation,” said analyst Jean Roche.

He still prefers ASOS (LON:ASC), Dunelm (LON:DNLM) and Ted Baker (LON:TED) however, which all have the potential to boost both margins and growth.

Shares in Debenhams rose more than 6% on the back of the robust results.

Citi could be found perusing Home Retail Group (LON:HOME) after yesterday's announcement it could close at least 75 of its Argos stores in a blow to the UK’s high street.

The heavyweight broker added 8 pence to its 70 pence target price but believes it will struggle to hit the back of the net with its goal of £4.5 bln sales at Argos by 2018 compared with £3.9 bln this year.

“This looks ambitious, in our view, requiring Argos to achieve around 4.5% like-for-like sales per annum over the 2014 – 18 period,” said analyst Assad Malic, who retain a ‘sell’ stance.

Citi was wielding the axe today as it chopped Whitbread (LON:WTB) down from ‘buy’ to ‘neutral’.

With the outlook for UK consumers remaining poor, the broker does not expect an improvement in the near future as growth slows at Premier Inn.

“We remain positive on the medium term outlook, especially WTB’s ability to take market share from a weakened competitive set,” said Citi, which remains upbeat about its coffee chain Costa.

“However the shares are approaching our 2,400p target (up from 2,300p) and we downgrade to Neutral.”

Taking a trip away from retail leads us to jump aboard travel company National Express (LON:NEX).

And the message from UBS is just that – even with the weakness showed in the third quarter results.

“We still believe it is attractive in the long-term, given the valuation and well-covered 5.5% dividend yield, though we have concerns about the weak momentum and lack of catalysts in the short-term,” said the Swiss broker.

It keeps to its ‘buy’ rating even though the wheels came off the shares yesterday.

Shares in advertising giant WPP (LON:WPP) have slipped 2.7% today after it cut its revenue growth forecasts this morning.

Trading in the US and on the Continent has been tough but Investec believes the international marketing growth story remains, so a buying story could emerge.

 

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