Broker tips: Burberry, JD Wetherspoon, Asian Citrus

21st Sep 2012 13:28

Analysts at Credit Suisse were left scratching their heads after a meeting with Burberry management and a visit to the Spring '13 showroom on Thursday night. What has gone wrong in the two weeks through September 8th, they ask themselves. "Our recent conversations with peers and initial checks with luxury operators makes us guess that Burberry's warning possibly reflects a combination of sector-wide factors (e.g. slowing economy and pull-back in gift giving in China, slowing US) and company-specific issues," they write. Even so, they came away with the knowledge that Burberry's merchandising teams are analysing the potential factors above and accelerating initiatives to add more appealing items and greater wow factor to stores in coming months.Thus, for now, Credit Suisse opts to maintain its investment outlook (outperform) while it looks for more clarity after extra channel checks, particularly given that the stock has de-rated (to 14.4x the company´s estimated 2013 calendar year price-to-earnings multiple versus the luxury sector´s average multiple of 15x). Nevertheless, its analysts have cut their target price to 1400p from 1600p previously. JD Wetherspoon has won the praise of analysts at Nomura for its "swift" reaction to the stagnant sales and margin pressures seen in the 2012 fiscal year. During that period the pub owner saw like-for-like (LFL) sales growth of just 3.2%, which was insufficient to fully offset pressure on gross margins, utility cost inflation and higher expenditure on repairs. As a result, margins fell by 50 basis points to 9%. There are 100 basis points to a full percentage point.However, in its fourth quarter LFL sales grew 6.1% and the company only saw 30 basis points of margin pressure. Furthermore, momentum continued into the start of fiscal year 2013 (six weeks to 9th September) with LFL sales up by 8.4%. That was materially better than the industry data (Peach Tracker +2.1% in August) and suggests that JD Wetherspoon is taking market share, the broker explains. For all of the above reasons Nomura has decided to raise its target price to 465p and its recommendation to Neutral (from Sell), adding that it believes that there is risk to the upside if the current sales momentum can be maintained. Analysts at Seymour Pierce have issued a bullish note on Asian Citrus, highlighting both the "very encouraging" 8.7% rise seen in net profits, to RMB629.1m, as well as the "pleasing" 30% increase in its final dividend payment, for a yield of 5.2%. So, while the company´s outlook notes the slowing Chinese economy, which may result in a modest, if any, rise in orange prices, the poor winter harvest expected should see some rise by the end of 2012, the company's house broker notes. Furthermore, the broker has a positive view of the firm´s pursuit of synergistic benefits from the vertical integration into the fruit processing business. These analysts believe that investors will be encouraged by the results. So, given that the company is trading on a historic price-to-earnings (PE) multiple of just 6.6x (earnings per share (EPS) of RMB0.52/5.07p) and a prospective PE of 5.9x, Seymour Pierce has decided to maintain its BUY recommendation and 50p target price.AB