Companies operating in the leisure industry are set to be hit by changes to the national living wage, but by how much?
Deutsche Bank (DB) has examined the implications of the changes announced in the recent Budget, and estimates that, notwithstanding initiatives to mitigate the effects, theme park operator Merlin (LON:MERL) will take a 2% hit to profit before tax, while the impact on pubs groups JD Wetherspoon (LON:JDW) and Mitchells & Butlers (LON:MAB) could be anything up to 25%.
It has downgraded M&B from 'buy' to 'hold' and chopped its price target from 540p to 500p. Numis Securities, meanwhile, has downgraded the stock to 'hold' from 'add'.
DB takes a knife to the 'Spoon's price target, slashing it to 675p from 745p, while sticking with its 'hold' rating.
There is better news from DB for low-cost airline easyJet (LON:EZJ), ahead of its results next week.
Deutsche has upped its price target from 1,830p to 1,915p.
Credit Suisse takes a look at the bookies and fancies a punt on Paddy Power (LON:PAP) but reckons backers of Ladbrokes (LON:LAD) will end up doing their money.
The shift from land-based betting to online gaming is positive for Paddy Power and negative for Ladbrokes, in Credit Suisse's view.
“Paddy Power's economic profit has expanded 126% since 2007 whilst Ladbrokes has fallen 80% yet it is priced for a reversal of fortunes we don't envisage,” the Swiss bank observed.
Paddy Power is rated 'outperform', and has a price target of €85, while Ladbroke is expected to under-perform, and has a price target of 85p.
Elsewhere in the leisure sector, Credit Suisse thinks cruise operator Carnival (LON:CCL) is a strong recovery play.
“Our forecasts imply Carnival returns will continue to expand from 33.9% in 2014 to 40.3% in 2024E. This yields a $70.67 warranted price, 36% above current levels,” Credit Suisse said of Carnival, which is listed in London and New York.
Carnival has been a beneficiary of cheaper oil prices, which is more than can be said for Petrofac (LON:PFC), but the stock is starting to bounce back from the hammering it received during the oil price collapse, and there is further to go, reckons JP Morgan Cazenove.
The oilfield support services firm has been added to Cazenove's European Analyst Focus List, having been upgraded to 'overweight' a few weeks ago.
Cazenove's price target is 1,031p, suggesting upside of around 140p.
Citigroup, meanwhile, reckons there is more pain to come for Global Big Oil. It has cut its oil price forecasts for 2015 by 8% to US$58 a barrel and its 2016 projection by 10% to US63 a barrel.
“Even with some offset from stronger refining, our new forecasts suggest that sector ROE [return on equity] - already at 17 year lows - will trend even lower to c.6% by year-end,” Citi opines.
Investec Securities has got off the fence and decided that chip designer Imagination Technologies (LON:IMG) is now a 'buy'.