Date: Wednesday 07 Jul 2010
There’s been a mixed response to the latest figures from high street bellwether Marks and Spencer despite a 3.6% increase in UK like for like (LFL) sales for the first quarter.Panmure Gordon says the statement “looks strong”, especially as the retailer beat the broker’s target of a 3% LFL sales improvement. Both general merchandise and food also topped forecasts.
“Although the UK consumer is likely to be under pressure over the coming 12-18 months, we think that the M&S customer is likely to hold up rather better than, for example, the Debenhams (Hold, 58p price target) customer,” Panmure said.
The guys at Ambrian are also happy. They think M&S has “significant” sales and margin recovery potential and a huge opportunity to trade its brand more aggressively online.
“This is very much a holding statement, given that the new chief executive is conducting a review of the business, the fruits of which are not expected until the autumn,” it explains.
“We don’t think that M&S is dead. It has problems, but these are solvable. While the shares have recovered strongly since 2008, we believe that the current valuation is still too low and this is reflected in our target price of 576p.”
But KBC Peel Hunt is nervous. While it accepts Marks has had a good start to the year, there are enough concerns for it to repeat its “sell” rating and 325p target price.
“Our concerns for Marks & Spencer stem from relative balance sheet constraints and lower cash generation compared to its peers such as Next as capital expenditure starts to ramp up to normal levels and to meet new investment plans,” said KBC analyst John Stevenson.
He prefers Next (Hold, target price 2,300p) and Debenhams (Buy, target price 80p) on valuation grounds.
New planes used by easyJet must make more money than anything the budget airline has achieved before if it is to create shareholder value, reckons Charles Stanley.
Analyst Douglas McNeill believes pre-tax profit (PBT) per seat, normally about £3, has to hit £5.80 in order to justify the current share price Its best ever is £5.34, in 2002.
“We do not take this kind of improvement for granted. Instead, we allow for asset utilisation to get some of the way back to pre-recession levels, and for the new planes to deliver PBT of £4.50 per seat,” McNeill said in a note to clients.
“This would, we estimate, make the equity worth 334p, which we adopt as our target price. At the long-run average of £3, it would be difficult to justify a valuation above 300p.”
A sceptical KBC Peel Hunt recently started coverage of Autonomy with a “sell” rating and nothing that’s happened since has changed its view.
“If Autonomy beats numbers for a quarter, they normally announce the fact within five trading days of the quarter end (ie today),” says Morland.“Realistically, this probably means that if we hear nothing tomorrow or the next day, then Q2 consensus has not been beaten.”
The broker sees this as a negative for the shares, because Q2 should be benefiting from a one-off sale of $10m of stock that would not have been in consensus.
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