Date: Tuesday 10 Aug 2010
KBC Peel Hunt was not surprised by Tuesday morning’s profits warning from travel firm TUI Travel and thinks the shares have little appeal beyond the yield and the hope of a bid from major shareholder TUI AG.
The broker notes that the margin pressures are building up. Current UK summer 2010 sales are up 12% year on year, with total customers up 2% and average selling price (ASP) +10% higher but the corresponding figures back at the beginning of May - +14%, +4% and +10% - were all at least as good or better.
“This weakening is no surprise and while volumes are picking up this is coming at the expensive of margins. Central Europe has improved, particularly the German market, where sales are currently +1%, compared to -2% previously; however, this is being driven by lower-margin product,” says KBC analyst Nick Batram.
KBC Peel Hunt is moving its 2010 adjusted profit before tax forecast down to £330m from £356.8m and its earnings per share estimate down to 21.2p from 22.9p previously.
The broker is already towards the bottom of consensus on forecasts for 2011 but has indicated it will contemplate lowering these estimates too.
“Things could have been worse,” Batram concedes, “but even where there is good volume news the margin picture has deteriorated.”
“Speculation about a possible bid from TUI AG is likely to be the only excitement for the foreseeable future,” Batram concludes.
KBC Peel Hunt’s recommendation on the shares is “hold”. It has cut its price target from 259p to 252p.
There is still the prospect of ‘jam tomorrow’ from Greggs even though the doughnut seller was cautious in its outlook for the second half of 2010.
FinnCap notes that the snack food retailer has partial cover on wheat and other ingredients for the latter part of the year and expects raw material prices will subside in response to fundamentals, but the broker is expecting the company to experience an increase in ingredient costs.
The company will doubtless seek to pass these increased costs on to the consumer but “given an austere economic background, and Greggs discount positioning, one could be forgiven for seeing risk in this development,” FinnCap analyst David Stoddart suggests.
Stoddart intimates that the broker is contemplating reducing its full year pre-tax profit estimate of £51m on the basis of the cautious revenue outlook and the risk to gross margins.
The company is sharply increasing capital expenditure (capex) but, based on current forecasts, Stoddart thinks the company is eminently capable of funding this without taking on debt,
“Its financial position remains a key strength. Support from buy-backs might disappear in response to the capex increase. Lowered forecasts also remove an element of support. Nevertheless, the shares do not appear over-valued. We retain our hold recommendation pending forecast changes following the results meeting,” the broker concluded.
Daniel Stewart has given the thumbs up to the partnership with Source Interlink Media (SIM) announced by video search engine company blinkx.
SIM has more than 75 publications, around 90 web sites and serves more than 110,000 US retailers, the broker notes. The deal to place contextually relevant advertising against the videos and share resultingadvertising revenue with Source Interlink Media is “exactly the type of association that should continue to fuel blinkx’s targeted advertising revenue model, addressing its target 18-20% (E) of total blinkx video searches that match the requirements of its advertising partners,” reckons Daniel Stewart analyst Mike Jeremy.
The broker notes that the margin pressures are building up. Current UK summer 2010 sales are up 12% year on year, with total customers up 2% and average selling price (ASP) +10% higher but the corresponding figures back at the beginning of May - +14%, +4% and +10% - were all at least as good or better.
“This weakening is no surprise and while volumes are picking up this is coming at the expensive of margins. Central Europe has improved, particularly the German market, where sales are currently +1%, compared to -2% previously; however, this is being driven by lower-margin product,” says KBC analyst Nick Batram.
KBC Peel Hunt is moving its 2010 adjusted profit before tax forecast down to £330m from £356.8m and its earnings per share estimate down to 21.2p from 22.9p previously.
The broker is already towards the bottom of consensus on forecasts for 2011 but has indicated it will contemplate lowering these estimates too.
“Things could have been worse,” Batram concedes, “but even where there is good volume news the margin picture has deteriorated.”
“Speculation about a possible bid from TUI AG is likely to be the only excitement for the foreseeable future,” Batram concludes.
KBC Peel Hunt’s recommendation on the shares is “hold”. It has cut its price target from 259p to 252p.
There is still the prospect of ‘jam tomorrow’ from Greggs even though the doughnut seller was cautious in its outlook for the second half of 2010.
FinnCap notes that the snack food retailer has partial cover on wheat and other ingredients for the latter part of the year and expects raw material prices will subside in response to fundamentals, but the broker is expecting the company to experience an increase in ingredient costs.
The company will doubtless seek to pass these increased costs on to the consumer but “given an austere economic background, and Greggs discount positioning, one could be forgiven for seeing risk in this development,” FinnCap analyst David Stoddart suggests.
Stoddart intimates that the broker is contemplating reducing its full year pre-tax profit estimate of £51m on the basis of the cautious revenue outlook and the risk to gross margins.
The company is sharply increasing capital expenditure (capex) but, based on current forecasts, Stoddart thinks the company is eminently capable of funding this without taking on debt,
“Its financial position remains a key strength. Support from buy-backs might disappear in response to the capex increase. Lowered forecasts also remove an element of support. Nevertheless, the shares do not appear over-valued. We retain our hold recommendation pending forecast changes following the results meeting,” the broker concluded.
Daniel Stewart has given the thumbs up to the partnership with Source Interlink Media (SIM) announced by video search engine company blinkx.
SIM has more than 75 publications, around 90 web sites and serves more than 110,000 US retailers, the broker notes. The deal to place contextually relevant advertising against the videos and share resultingadvertising revenue with Source Interlink Media is “exactly the type of association that should continue to fuel blinkx’s targeted advertising revenue model, addressing its target 18-20% (E) of total blinkx video searches that match the requirements of its advertising partners,” reckons Daniel Stewart analyst Mike Jeremy.
The broker is tipping blinkx’s search rate will hit a daily total of 36m by March 2011, up from 22.6m reported in March 2010 and 8.4m in March 2009.
The broker has reiterated its “buy” recommendation and target price of 110p.
source:digitallook
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