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Broker tips: BT, Retailers, Housebuilders
Wed, 08 Feb, 2012
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Broker tips: BT, Retailers, Housebuilders
Fri, 12 Feb 2010, 12:30:00
Pension worries loomed large over <b>BT</b>'s third quarter results announced on Thursday, prompting Nomura to cut its target price for the stock even as the broker upgraded its full year earnings estimates. 'We increase our EBITDA [earnings before interest, tax, depreciation and amortisation] forecast by 1% following yesterday's solid operating results. However our DCF [discounted cash flow] based target price falls from 165p to 145p reflecting the higher than expected pension deficit payments,' Nomura analyst Graeme Pearson said. Nomura's rating on the stock remains neutral. Charles Stanley is cautious on the retail sector but thinks picking the right stocks can still pay off for the canny investor. It has raised its price target on sportswear group <b>JD Sports</b>, on which it has a 'buy' stance, to 750p from 650p. Charles Stanley is enthused by JD Sports' fashion store chain Bank, which it thinks 'has a strong store rollout potential.' The broker also rates home shopping group <b>N Brown</b> and music and film retailer <b>HMV</b> as 'buy' stocks, though HMV's price target is cut to 120p from 160p. The changes were made as part of a broad review of the retail sector in which Charles Stanley advices investors to 'buy quality on the dips' and 'identify now/today those retailers most immediately vulnerable to an economic double-dip'. Charles Stanley has 'hold' recommendations on newsagent <b>WH Smith</b>, outdoor clothes and equipment retailer <b>Blacks Leisure</b> and video games group <b>Game</b>, whose target price it cuts to 90p from 170p. It advises investors to 'sell' online fashion retailer <b>ASOS</b> on valuation grounds. Speculating on <b>housebuilding stocks</b> is proving to be a traders paradise, KBC Peel Hunt reckons, as the sector is 'volatile but range bound'. The broker has identified a set of trading ranges for the sector constituents and reckons that after the recent shake-out 'most stocks are at the bottom of these ranges.' 'The range tops might be: <b>Bovis</b> 440p; <b>Persimmon</b> 475p; <b>Bellway</b> 800p; <b>Taylor Wimpey</b> 42p,' KBC analyst Robin Hardy suggests. Hardy goes on to observe that if investors take the view that the share price valuation should be linked to net asset value (NAV) per share then there are several stocks trading at hefty discounts to NAV, such as <b>Barratt Developments</b> (45% discount), Bovis Homes (27%), Bellway (15%) and Persimmon (7%). Hardy claims to be a ploughing a lone furrow, however, in insisting that valuations should 'fall back to their traditional metric of earnings,' and remains fundamentally bearish on the sector. 'A lack of first-time buyer affordability, tighter lending criteria and pressures on personal incomes are likely to cause a drop in house prices, but perhaps not until later in 2010. This makes the job of restoring EPS [earnings per share] doubly difficult and underscores the longer term overvaluation,' the broker concludes.
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