Date: Wednesday 23 Jun 2010
The second quarter update from cruise operator Carnival was about what Nomura Securities was expecting, though earnings per share were a little above company guidance.“2Q EPS [second quarter earnings per share] of $0.32 driven by net yield growth of 2% compared with guidance of $0.26-$0.30 and 1-2% respectively,” Nomura analyst Nicholas Thomas observes.
The broker is forecasting a period of above-trend net yield growth, somewhere around 3% per annum, “driven initially by cyclical recovery following a 9% decline in 2009, and subsequently by a reduction in industry capacity growth from c9% pa historically to 3-4% pa from 2012.”
Thomas said the change in emphasis from capacity driven volume growth towards like for like revenue growth should be reflected in higher margins, return on investment capital and cash
Meanwhile the effect of the dollar’s strength against the euro and sterling should be offset by lower fuel and other costs, the broker predicts.
The broker, which has a “buy” recommendation on the stock and a price target of 3330p, regard “Carnival as a genuine growth company with an industry-leading market position and a model that we believe is long term value accretive.”
Results from bus and train group Stagecoach were a tad ahead of Panmure Gordon’s expectations but not enough to persuade the broker to change its neutral view of the stock.
“Positive newsflow on potential rail franchise wins is being pushed back as the DfT [Department for Transport] will shortly begin a consultation exercise on the future of rail franchising policy (the bidding processes for the Greater Anglia and Essex Thameside franchises are to be cancelled and a new competition will start for Greater Anglia by the end of the year and for Essex Thameside in Autumn 2011. The timetable for the InterCity East Coast is also being delayed),” notes Panmure analyst Gert Zonneveld.
“We believe the shares are fairly valued and we retain our Hold recommendation and 200p target price,” the broker concluded.
KBC Peel Hunt is more bullish, rating the shares a “buy”, with a price target of 220p.
“With its strong base in UK bus and coach, Stagecoach continues to show sound trading progress which, with its major balance sheet potential, is overshadowed by the prospect of significant acquisitions,” opines KBC analyst Paul Hickman.
“Yesterday’s budget did not mention any reduction of fare concessions but we expect these will emerge from the departmental spending review and still represent a risk to the sector,” Hickman added.
The projected reduction in corporation tax announced in Tuesday’s budget is likely to have minimal effect on earnings, as the company pays only 70% of its tax in the UK.
Profits from graphics chip designer Imagination Technologies were in line with expectations, but traders have chosen to bank profits after the company failed to bump up profits guidance.
The shares have risen by around a quarter in the last month and by more than one and a half times in the last year but are still attractive in the eyes of KBC Peel Hunt. The broker is anticipating 70% growth in profit before tax in fiscal 2011, and even that level of improvement puts it well behind some forecasts in the market which appear “to be 80% higher than ours”.
KBC Peel Hunt is forecasting adjusted pre-tax profit of £18m for the current financial year and earnings per share (EPS) of 5.6p. In contrast, Panmure Gordon reckons current year EPS will be 9.26p.
Panmure thinks “the stock is likely to digest recent gains” and “would be buyers on any dips.” Its price target for the stock is under review.“The results adequately demonstrate Imagination’s growth and future prospects in which we maintain high conviction. The stock has had a strong run and probably needed a material revenue beat to see further strength in the short term,” suggests Panmure analyst Nick James.
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