Broker tips: Carnival, Wetherspoon, reinsurers

14th Mar 2011 12:57

Although Nomura has reduced its target price for Carnival - after the cruise operator lowered its guidance as a result of rising fuel costs - the broker stays with a 'buy' rating.The first quarter results came in at the top end of the guidance range, but the group downgraded its full year earnings per share (EPS) guidance midpoint by $0.45 (15%), largely due to the rise in oil prices. The group also attributed the impact of the Middle East and North Africa situation on bookings and itineraries as a small reason for the reduction."Having marked to market ourselves three weeks ago, the impact on our forecasts is 7% (lower than the 15% guidance change)," says analyst Nicholas Thomas. Nomura also adjusts estimated 2011 net yield to +3.7%, from +4.5%."Uncertainties on [fuel costs and geopolitical unrest] could persist near term. However, our core thesis for a period of above-trend yield growth, driven by cyclical recovery and a better supply/demand balance, is unchanged," says Thomas.The target price is reduced from 3.450p to 3.250p, but a positive stance is maintained.Input cost pressures at JD Wetherspoon have caused a reduction in estimated margins, but sales growth is the focus of the business, according to UBS.Earnings before interest and tax (EBIT) margins fell 60 basis points (bp) in the first half to 9.4% due to the introduction of earlier opening hours, the hiring of regional catering managers to ensure new pubs trade well from the start, and increased expensed repairs and maintenance.While UBS notes that these were well-flagged and in some respects temporary, the group warned of rising input costs from food and energy costs in the coming months. "We have reduced out 2012 margin forecast by 50bp as a result," says the broker.However, UBS thinks that the company is on track to meet its "growth aspirations" and new openings should add 6% to sales this year and over 5% next year. "Like-for-like sales growth and a larger estate should help to offset input cost increases."A 'buy' rating is kept, but the target price is reduced from 500p to 475p to reflect lower margins in 2012 and a somewhat higher rent charge as well.The scale of the Japanese earthquake is indeed huge, but in terms of an insured loss it appears, at first sight, to be on a more limited scale than might have been expected, according to broker Daniel Stewart."Given that traditionally the two biggest natural disasters that the insurance has modelled are 1) a Tokyo earthquake, and 2) a Manhattan windstorm, a $10bn hit to the insurance industry should be viewed as 'containable' though of course further aftershocks and possibly further earthquakes are expected," says analyst Simon Willis.London-based insurance underwriter Chaucer, which is a nuclear specialist, reported Monday that it is one of the panel of insurers providing coverage to Tokyo Electric Power Company, owner of two out of three nuclear sites in the affected area. However, it "does not expect any significant insured loss: at these two plants, there is no coverage in place for property damage or business interruption and, at the third, cover for property damage is provided but earthquake and tsunami are specifically excluded," says Willis.While Daniel Stewart estimates the hit to insurers will range from 5% to 15% of net asset value (NAV), it notes that for a disaster of this magnitude it could have been larger.Lloyd's-based insurance stocks generally trade on 0.8-1.3 times NAV, and many offer attractive yields, according to Daniel Stewart. The broker's preferences lie with Hiscox and Amlin which are on price-to-tangible NAV ratios of around 1.2 with yields of 4-5%.