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The Expert View: Burberry, RBS and BP
Our daily round-up of analyst recommendations and commentary, featuring SuperGroup, Kingfisher and Greggs.
by Harry Brooks on Sep 12, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Burberry, RBS, BP, SuperGroup, Kingfisher and Greggs.
Seymour Pierce downgrades Burberry as shares crash
Kate Calvert, analyst at Seymour Pierce, has downgraded Burberry (BRBY.L) from 'buy' to 'hold' after the luxury goods group issued a profit warning amid a slowdown in sales.
Retail sales in the second quarter rose 6%, but cutting out the effect of new store openings reduces this figure to zero, and the statement warned that there's been a 'deceleration in recent weeks'. The group expects pre-tax profit for the year to come in 'around the lower end of market expectations'.
Calvert said the group is freezing headcount and travel, cutting marketing spending, and deferring IT projects. 'It is also sensibly accelerating and bringing forward some of October statement pieces into stores early so as to capitalise on the footfall,' she said.
Although she said today's share-price decline is disproportionate, Calvert has opted to downgrade as the lack of visibility on the demand picture will hurt sentiment in the short term.
Over at Charles Stanley, analyst Sam Hart also downgraded Burberry to 'hold'.
Shares in the group closed at £10.88 on Tuesday, down 287p or 20.87%.
JP Morgan: pick Royal Bank of Scotland over Lloyds
Sinha recently met RBS chief executive Stephen Hester, and was reassured about the direction of the bank: 'Following our meeting, we believe the group continues to take the right actions in terms of balance sheet deleveraging to build up capital.'
Fines relating to Libor manipulation remain a threat, Sinha said, although he expects them to be 'manageable' in size. 'PPI redress costs are also a concern and our sense remains that there may be more to go for the sector on this issue,' he added.
Although Sinha is not negative on Lloyds, he said RBS currenly looks to be better value, trading at 0.6x core 2013 tangible net asset value, compared with Lloyds on 0.8x.
Shares in the group closed at 264.7p on Tuesday, up 11.7p or 4.62%.
Nomura lifts BP's target price on asset sale
Theepan Jothilingam, analyst at Nomura, has increased his target price for BP (BP.L) on news that it is to sell oil and gas fields in the Gulf of Mexico to help cover the costs of the 2010 Deepwater Horizon disaster.
BP is selling the fields to Plains Exploration and Production for $5.5 billion (£3.4 billion). The analyst noted that of BP's $38 billion disposal target, $32 billion has so far been realised, and a third of this has come from North America. The disposal is part of the group's 'shrink to grow' plan, which focuses on the disposal of mature assets in favour of bigger, more profitable prospects.
'It’s evident BP has looked to reduce its exposure in the US, reducing operational risk particularly around midstream and downstream assets and prioritising on scale and returns in the upstream,' he said.
Jothilingam's target price has increased from 450p to 455p, reflecting his $4 billion valuation of the assets sold. The analyst retains a 'neutral' valuation on the shares.
Shares in the group closed at 443p on Tuesday, up 5.2p or 1.19%.
Canaccord bumps up target price for SuperGroup
Wayne Brown, analyst at Canaccord, has increased his target price for clothing retailer SuperGroup (SGP.L) following what he called a 'very strong' first-quarter update.
UK sales over the quarter rose 1.7% year-on-year, with strong sales of jackets, gilets and sweatshirts amid the wet weather.
'We are today increasing our forecasts to in-line with consensus as a result of both UK retail and wholesale ahead of our prudent assumptions,' Brown said. 'Against what has been a strong start to the year, suggests that our forecasts may still be too light and forecast risk remains firmly on the upside.' Brown's target price rises 70% to 850p.
Even though the shares have gained 21% over the past month the analyst expects momentum to continue, and he cited possible re-entry into the FTSE 250 as an additional positive.
Shares in the group closed at 560.87p on Tuesday, up 29.87p or 8.72%.
Deutsche Bank downgrades Kingfisher
Rod Whitehead, analyst at Deutsche Bank, has downgraded DIY group Kingfisher (KGF.L) from 'buy' to 'hold' following a rally in the shares over the past year and a darkening economic outlook.
Although Whitehead expects earnings per share to rise 5% in each of the coming five years as a result of sourcing gains, he said the economic backdrop would hold the company back.
'The other key ingredient to our buy case has always been eventual cyclical recovery in DIY, which our forecasts assume from H2 in the UK, and from 2013/14 in France. Recent data suggests neither may happen, which reduces our conviction,' he said.
Based on this weaker outlook Whitehead has increased the discount on his discounted cash flow model from 10% to 15%, which pulls his target price down from 340p to 315p.
Shares in the group closed at 272.3p on Tuesday, down 9.4p or 3.34%.
Oriel says 'sell' Greggs as pork prices rise
Jonathan Pritchard, analyst at Oriel, has reiterated his 'sell' stance on Greggs (GRG.L) amid concerns about the rising price of pork – a key ingredient for the sausage-roll seller.
The analyst cited an article in yesterday's Financial Times suggesting that pig production is becoming increasingly uneconomic. Droughts in the US have caused the price of feed to rocket and new EU regulations will make life harder for pig farmers from January.
Many pig farmers are giving up the industry, according to the article, which will lead to price inflation.
'The customer hardly has loads of spare cash at the moment anyway and the binary relationship between inflation and volumes will persist for the food retailers,' Pritchard said. 'That’s bad news for Greggs, which obviously has a disproportionate reliance on pork products. Earnings growth will be very pedestrian here, which doesn’t justify the premium to the sector and the market.'
Shares in the group closed at 490.6p on Tuesday, up 3.9p or 0.8%.
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Look up the shares
- BP PLC (BP.L)
- Greggs PLC (GRG.L)
- Kingfisher PLC (KGF.L)
- Burberry Group PLC (BRBY.L)
- Royal Bank of Scotland Group PLC (RBS.L)
- SuperGroup PLC (SGP.L)