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Broker Spotlight brings some of the more intriguing and topical analyst coverage to centre-stage. The daily column aims to illuminate thoughts and opinions behind the big stories. London is one of the financial capitals of world. The influential and closely followed views of its analysts regularly move markets and split opinion. The Broker Spotlight column arms Proactive readers with the added insight from the often colourful thoughts and headline-grabbing valuations from the City’s analyst community.
Broker Roundup Part 1 including: M&S, Next, Debenhams, International Airlines Group, BSkyB and Shire
June 25 2012, 11:39am
The UK’s summer washout has hit UK clothing retailers hard and heavyweight broker Morgan Stanley has downgraded forecasts for three of the country's stalwarts.
Even a ray of sunshine in July and August will come too late to help sales recover as stores are starting to enter their summer clearance sales, says the US broker.
According to research conducted by PwC, 73 per cent of high street stores had started sales or were advertising promotions in their shop windows last week, compared to 70 per cent at the same time last year.
Like-for-like sales expectations at M&S (LON:MKS), Next (LON:NXT) and Debenhams (LON:DEB) were all cut by between 3 and 5 per cent for the quarter.
The downgrades however do not drip down into later years and the broker left price targets unchanged.
Analyst Geoff Ruddell said: “We think it is now too late in the season to make back lost sales and that forecast downgrades are necessary.”
Ruddell added that although higher markdown costs are anticipated, M&S and Next gross margin expectations are unchanged because previous forecasts were too conservative.
Of the three retailers Debenhams received the largest earnings downgrade, with pre-tax profit estimates for the year reduced by 6.1 per cent to £155 million.
However the broker adds that Debenhams retains its ‘top pick’ in the UK general retail sector and an ‘overweight’ recommendation.
M&S and Next meanwhile hold onto their ‘equal-weight’ recommendations.
Despite the rain, this summer could be a “bonanza” for European airlines as fares are high and fuel is low, according to broker Liberum.
As a result British Airways owner International Airways Group (LON:IAG) has been upgraded to a ‘buy’ by the broker.
Fuel has risen progressively over the last couple of years.
It has spent most of 2012 trading between US$1,000-US$1,1000 per tonne, but since the beginning of May the price has declined to US$874 per tonne.
The broker now forecasts underlying earnings in 2012 to reach €378 million, up from €143 million.
Analyst Peter Hyde said: “In the short-term we believe that tight capacity discipline, high fares and falling fuel prices are likely to drive earnings upgrades.
“We have therefore raised our target price to €2.55 per share.”
BSkyB (LON:BSY) received a sunny upgrade from investment bank Espirito Santo which says it can see - for the first time in years - potential for a greater than 20 per cent upside in the shares. It was upgraded to 'buy'.
Analyst Giasone Salati gives the stock a fair value of 820 pence and says the launch of the new broadband entertainment service, launching this summer and the recent Premier League TV rights deal will prove to be positive catalysts in next 12 months.
Shire (LON:SHP) slipped to the bottom of the FTSE 100 pile this morning after news that American regulators approved a rival’s application to manufacture a generic copy of its hyperactivity drug.
However heavyweight broker JP Morgan said the drop in the share price could make for an attractive long-term entry point.
JP Morgan gives an ‘overweight’ stance on the stock and price target of 2360 pence.
