The share price of Carpetright had the rug pulled out from under it on Tuesday morning after full year results and the dividend came in below expectations, but Singer Capital Markets thinks the main worry for the share price is the prospect of another housing slump.“In the short term we believe the biggest risk relates to another slump in housing transactions, with approvals already pointing towards increased pressure in H1 [the first half],” the broker said.
Singer notes that the full year dividend has been doubled to 8p but that this was 4p below guidance issued by Carpetright management before Christmas.
“There may be some downside risk to forecasts on the back of disruption to trading after the election and as housing activity slows short term,” Singer suggests.
At 710p the broker thought the shares were fairly valued. Since the trading update the shares have plunged to around 640p.
KBC Peel Hunt has reacted to the disappointing trading update by cutting its fiscal 2011 forecast profit before tax from £37.5m to £31.7m, largely because of net store closure.
KBC analyst John Stevenson is sticking with the “hold” recommendation but has slashed the price target from 1,000p to 700p. With housing transactions remaining subdued, Stevenson thinks “recovery will take time”.
“With tight cost control, strong margin management and a pipeline of new revenue streams, we see no reason Carpetright cannot fully recover peak profits over time, although we have cut back our UK forecast assumptions to reflect a more restrained trading environment over the next two years,” Stevenson said.
Standard Chartered’s recent trading statement indicated weaker revenue and cost trends than Nomura Securities was expecting but the broker continues to prefer the stock to fellow Asia-focused bank HSBC.
Nomura said the underperformance was largely due to the normalisation of strong account income within the wholesale banking division.
“We have accordingly downgraded our pre provision estimates, which are offset by lower impairments in 2010,” said Nomua analyst Raul Sinha.
The broker’s “buy” recommendation and price target of 1990p have been maintained, however.
“Although the group trades at a significant premium to the European bank sector, its valuations are inline with its natural peer group of Far Eastern banks. Also, the current revenue pressures are industry wide and we would still argue that, given its business mix, StanChart would outperform other developed market banks in operating performance in a weaker environment for wholesale revenues,” Sinha said.
Even house broker Arbuthnot was surprised at the strength of full year results announced yesterday by Clarity Commerce Solutions, the sales and ticketing software developer.
“The conversion of some of the large pipeline of sales prospects stemming from the release of the new ClarityLive suite of software products resulted in Clarity beating our FY2010 [fiscal 2010] expectations, with PBT [profit before tax] of £1.9m vs. our £1.8m forecast,” the broker said.
The broker is forecasting a leap in sales revenue in fiscal 2011 to £24.4m from £19,1m in the year to 31 March 2010. In an interview with Sharecast on Monday chiefexecutive Ken Smith said the company was “comfortable” with this forecast.
“We value Clarity on a FY2011E P/E [fiscal 2011 price/earnings ratio] of 10.0x, which equates to a share price target of 55p. Our EPS [earnings per share] forecasts factor in a tax rate moving to 28%, although the substantial tax losses in the UK subsidiary should continue to help the cash position,” the broker said.
The valuation is predicated on Clarity continuing to be able to use its software platform to win more customers in existing and new markets.Arbuthnot has maintained its “strong buy” rating for Clarity.
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