Broker tips: Burberry, M and S, Hikma

17th Apr 2012 14:27

Merchant Securities has cut its rating for luxury brand Burberry from buy to hold on valuation grounds, but has maintained its positive stance on the group."We continue to believe that Burberry is a beneficiary of growing demand from global luxury travellers, especially in Asia, Middle East and Russia, which are more favourable than the domestic European luxury market, which appear subdued," said analyst Amisha Chohan.However, with the stock trading at a 19% premium to the luxury sector - "justified by the more favourable growth profile of the business" - the broker now believes that the stock is fairly priced, hence the downgrade.Marks and Spencer's fourth quarter trading figures are weak, according to Investec which has put its hold recommendation and target price for the stock under review.Investec does note however that the company has performed better on costs and/or gross margin with management still maintaining its full-year profit guidance. As such, the broker leaves its £690m profit before tax (PBT) forecast where it is (consensus: £694m). However, guidance for UK operating expenditure (open) growth of 3-5% is significantly worse than the broker's +1.2% forecasts. "We expect the FY13E PBT consensus to move down, from the current £740m (range £701m-£780m). For reference, every 50bps change in opex growth moves PBT by c£15m, ceteris paribus," Investec explained.UBS has upgraded its rating for pharmaceuticals group Hikma from neutral to buy, leaving its 755p target price unchanged, following the sell-off since the firm's full-year results last month.The broker sees a 10% and 6% downside risk to 2012 and 2013 earnings per share estimates - "we believe consensus does not yet fully reflect the increase in interest charges or the slower-than-expected ramp up in generic earnings before interest and tax margin."Since March 14th, the shares have fallen from a recent high of 774p to 656.5p as of yesterday's close, around 15%. UBS believes that the current share price already fully reflects an upcoming change in consensus. "This leads us to believe that the current share price offers an attractive entry-point for Hikma."BC