logo-loader

Broker spotlight: Shoppers' delight

Published: 10:33 28 Aug 2015 BST

primarkuk_81132874957766_opt_opt

The summer holiday season may be drawing to a close but Credit Suisse’s thoughts have turned to the hotels sector, and IHG and Whitbread in particular.

US and European hotels stocks in the Swiss bank’s coverage universe have fallen by an average of 20% from their 52-week highs, creating some interesting buying opportunities.

InterContinental Hotels Group (LON:IHG) is upgraded from ‘neutral’ to ‘outperform’ now the share price has ebbed to a little over £24, well below the broker’s £27.50 price target.

“We see upside risk to margins as system funds increasingly fund the business's costs,” Credit Suisse (CS) observed.

Whitbread (LON:WTB), on the other hand, sees its price target cut from £62 to £57.50, though CS retains a positive long term view of the owner of Premier Inns.

Weaker UK trading has prompted CS to lower its current year earnings per share (EPS) forecast by 3%, while the prospect of wage costs rising as a result of the introduction of the National Living Wage is an incremental risk.

Another stock seeing its price target sliced is oilfield support services provider Amec Foster Wheeler (LON:AMFW) after its results this week.

Banking heavyweight JP Morgan Cazenove has lowered its medium-term underlying warnings (EBITA) margin assumptions to reflect the slowness of Amec’s market.

As a result, the price target is cut to 902p from 991p, though with the share price currently trading around 786p, the recommendation remains for clients to be overweight in the stock.

Moving on to the retail sector, Primark owner Associated British Foods (LON:ABF) has had its price target hoisted by Jefferies to 3,010p from 2,850p, but UBS downgrades department store Debenhams (LON:DEB) to ‘sell’ from ‘neutral’ and cuts the price target to 70p from 90p.

“On all metrics, the European UK consumer looks more buoyant,” claims UBS, adding that consumers have never had it so good.

“Many of the global uncertainties such as a China slowdown are good news for the retail sector as a net importer. Interest rate rises being pushed back and lower oil price should keep consumer disposable income higher for longer. We challenge the consensus view of the retail sector underperforming ahead of an interest rate increase. The only material correlation is to consumer confidence, which we expect to stay at elevated levels given real wage inflation and robust underlying employment and economic growth,” UBS opined.

Despite that, what UBS calls its “Evidence Lab” has seen signs that shopping intentions for Debenhams are at the low end of both clothing and homewares retail, while the company scores below the sector average for retailers with regard to low prices and good value.

Bed linen and curtains seller Dunelm (LON:DNLM), however, is upgraded by UBS from ‘neutral’ to ‘buy’, with the price target advancing to 1,020p from 905p.

“Following two years of heavy cost investment, especially in the multi-channel offer, we now think estimates have stabilised and that the risk is now to the upside,” UBS said.

Among the minnows, house broker Cenkos has been mulling the implications of Rosslyn Data Technologies’ (LON:RDT) recently announced partnership with US firm Genpact.

Cenkos said the partnership will bring a number of new clients on to the Rosslyn analytics platform, and in conjunction with the business relationship with PwC announced in May, annualised new business wins amount to well over £1mln.

“The follow-on clients expected with the PwC contract could take annualised new business to over £2.5mln,” the broker suggested.

“We are in month four of Rosslyn’s fiscal 2016E period. We have in our forecasts a total of £1.6mln new business wins to meet our £5.0mln revenue forecast (£1.0mln from direct business and £0.6mln from partners). The ramp-up from these revenues will materialise over the next few months but early indications suggest that the Partner business is beginning to outperform and that Rosslyn will meet our 2016E forecasts,” Cenkos said, reiterating its ‘buy’ recommendation.

Chesnara reports strong 2023 results with improved cash generation and...

Chesnara PLC (LSE:CSN) chief executive Steve Murray discusses the company's full-year results for 2023 with Proactive's Stephen Gunnion, describing them as strong and particularly highlighting £53 million in commercial cash generation and a dividend coverage of around 150%. The company has...

31 minutes ago