Broker tips: Next, WSP, JD Wetherspoon

5th May 2010 12:47

Shares in Next shifted into reverse on Wednesday after the company's trading update, despite brokers queuing up to praise the company.KBC Peel Hunt said Next had made a strong start to the year, with the sales run rate ahead of the broker's assumptions. KBC Peel Hunt responded by upping its full year profit before tax estimate to £562m from £529m and lifting its price target from 2350p to 2450p.The broker believes Directory, the online and catalogue arm of Next, continues to provide significant protection in the event of an economic downturn. "With product and marketing also much stronger than it has been for some time, we believe Next is well set to deliver another successful year, despite the pressures on disposable income and consumer spending for H2 [second half of 2010]. In addition, moves to take Directory overseas offer an interesting growth option for the medium term that remains largely outside our forecast assumptions," KBC analyst John Stevenson said.The broker has retained its "buy" rating on the shares.Panmure Gordon has also raised its profit forecast for Next by around £5m, and is now expecting pre-tax profits for the current year to be £554.6m. "Next's current collection looks on trend, it is increasing its exposure to a younger and/or more fashion conscious customer, it is a true multichannel retailer and has a management team which is committed to returning capital to shareholders. We reiterate our Buy rating," said Panmure analyst Jean Roche.Numis Securities has bumped up its target price for WSP Group as the engineering consultant's prospects improve.Numis is leaving its earnings forecasts unchanged after WSP's trading update but the price target has been hiked to 465p from 375p.The broker welcomed the strengthening of the WSP board with the appointments of Paul Dolin as UK Managing Director and Rikard Appelgren, who has been managing director of Europe since 2006."The board now has 3 divisional heads in their early 40's, which offers a range of succession planning options, and these appointments come at a time when the group is working on its new 5 year strategic plan (to be unveiled later in the year)," Numis analyst Francesca Raleigh said.The broker has reiterated its "buy" recommendation, noting that the shares are trading on just 6.2 times adjusted earnings per share for 2008, while "there is a secure yield of 4.3%.""Risks include a slowdown in the UK public sector (though the group appears to have factored this into its 2010 expectations, and it is a relatively manageable part at c16.5% group revenues); pricing pressure; the timing of a recovery in the UK & International private sector; movement in the pension deficit; the absorption into forecasts of further redundancy charges and reputational," the broker concludes.A cautious third quarter trading update from JD Wetherspoon has prompted KBC Peel Hunt to trim its target price on the budget pub chain, to 600p from 620p.However, the broker remains confident on Wetherspoon's prospects and keeps its 'buy' rating on the pub group.It notes the slight weakening in trading and the company's caution on prospects for next year, but also nods to Wetherspoon's 'scalability,' its ability to apply its cheap pub model throughout the country.'We believe Wetherspoon as a branded system is significantly more scalable than the rest of the pub industry,' the broker says.One important detail from the statement that Panmure picks up on is the reduction in Panmure's opening target to 45 new pubs for the full year from 50 previously.In the short term, Panmure sees Wetherspoon benefitting from the World Cup and it thinks that the company is likely to perform well relative to the rest of the sector as economic conditions remain difficult.