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Broker tips: Mothercare, Ophir Energy, Informa

Market Buzz

Broker tips: Mothercare, Ophir Energy, Informa

Fri, 24 November 2017
Broker tips: Mothercare, Ophir Energy, Informa

(ShareCast News) - Analysts at Canaccord cut their 2018 pre-tax profit forecast for Mothercare by 43% on Friday to £12.0m, reassessing their estimate for losses from its UK business from £500,000 to £7.8m.
In parallel, Canaccord dropped Mothercare's target price from 103p to 47p and reiterated its 'sell' rating on the retailer.

To take note of, the Canadian broker's PBT estimate for the firm was also reduced, by 36%.

Critically, the analysts adjusted their projections for Mothercare's like-for-like sales, anticipating a 4% drop in the second half of 2018 and flat gross margins.

At the company's international unit, Canaccord reduced its full-year EBIT forecast from £36m to £33m driven by weakness in its Saudi business unit, which had accounted for "the bulk of the pressure" on sales and operating profits.

"Our DCF-based price target falls from 103p to 47p. High operational gearing and balance sheet risk makes this no place to be in a difficult consumer environment. Maintain Sell," the broker said.

Credit Suisse believes the market has become too pessimistic on Ophir Energy's ability to reach a financing deal with its potential Chinese investors in order to progress on Fortuna.

With a delay in Ophir's first-investment-decision already priced-in and following 10% underperformance in the shares quarter-to-date, Credit Suisse said it now saw an "attractive" risk-reward trade-off in the shares; hence its decision to upgrade its recommendation for the same from 'neutral' to 'outperform'.

According to the Swiss broker's analysts, market pricing was currently implying only a 50% chance of success.

"With an offtake agreement already in place, securing project financing may help to further de-risk the project to 90% we carry in our NAV," Credit Suisse added.

Furthermore, the broker hailed the company's decision to search for alternate project financing options in parallel to its talks with those Chinese investors.

Ophir was set to update the market in December and was aiming to wrap-up the necessary talks on project financing by mid-month with a view to taking FID in the first quarter of 2018.

Nonetheless, missing that schedule was a near-term risk which might potentially push-out FID and negatively impact management's credibility, the broker said.

After Informa's recent impressive performance, Liberum said the stock was its preferred way to play the events sector, upgrading it to 'buy' from 'hold' and doing the reverse for rival UBM, where there are "questions" over why it has not performed better.

Liberum, which cut its target price on UBM to 760p from 840p with its new 'hold' rating, said UBM "should be doing better" given the strong growth in events and its assets and analysts "feel uncomfortable" with the company's method of calculation of underlying revenue growth, which "feels like an attempt to ensure that UBM can state its underlying revenue growth is in line with the industry".

The chances of UBM being acquired "are probably fading", which "might prove to be entirely wrong" but no obvious buyer was apparent, with RELX clear in its recent presentation that it is not focused on major acquisitions in events and Informa "would be wary of diluting its organic revenue growth when it is outperforming the industry".

Analysts, which lifted their target price on Informa to 855p from 675p, is "delivering on its promises", with business intelligence back to positive growth, events showing strong growth, academic just about positive and 'Knowledge and Networking' trends improving.

"Given the wider concerns over media, that should ensure that Informa benefits from being perceived as a safe haven."