Broker tips: Burberry, Pearson, William Hill
HSBC has cut its target price on fashion label Burberry from 1,800p to 1,500p while retaining its ‘buy’ rating.
The investment bank noted a brutal shift in sales momentum, with the company being the fastest growing large soft luxury company up until September, where it was outperforming Gucci, Prada and Louis Vuitton.
However, the rate of growth in retail like-for-like sales growth dropped from 6% to -4% that quarter.
“Out of the 10 points delta, we estimate that the overall industry slowdown explains c3 points and unfavourable geographic mix (overexposure to weak regions such as Asia and HK, underexposure to strong regions such as Continental Europe and Japan) another c3 points.”
HSBC said it believe the rebound will be gradual with the Paris attacks, a promotional US market and warmer than usual weather.
With that in mind, the bank cut the company’s target price on the back of lower estimates.
“We have cut our FY March 16-18% EPS estimates by 2%, 10% and 12% respectively. We are 3%, 5% and 8% below consensus, respectively.”
Shares in Burberry were up marginally on the news, rising 5p (0.43%) to 1,162.00 at 0914 GMT.
Educational publisher Pearson rallied after Exane BNP Paribas upgraded the stock to ‘outperform’ from ‘neutral’.
“Risks of further earnings downgrades are real but seem discounted by an all-time low valuation. We are hopeful the new chairman will lead a profound refocussing of the group with better capital allocation. Cyclical and structural headwinds should ease from 2017,” the bank said.
Exane said Sydney Taurel brings with him a wealth of experience that will certainly please shareholders.
His immediate task will be to restore credibility after the stock’s 45% plunge in the last six months and Exane is hopeful of seeing positive developments.
The bank said Pearson’s recent commercial performance is mixed and it sees no relief in 2016.
The bank is below the earnings per share consensus by 5% on 2016e and 7% on 2017e but said further consensus downgrades already seem discounted in the share price.
It added that headwinds should abate in 2017 as the education policy reforms ease, US enrolment benefits from the move to free college tuition and with positive structural drivers continuing to offset the negative pressure.
It pointed out that the stock is on all-time relative lows at 11x 2016 price-to-earnings and a 7% yield.
“On our bear case scenario, the stock would trade on 13.5x P/E 16e and a 3.7% yield. Could it be the end of the world for Pearson and not for its peers? We think not and turn buyers in anticipation of a profound refocusing, a stable dividend and a return to growth in 2017. Applying peer sales multiples yields 50% upside.”
Investec downgraded William Hill to ‘sell’ from ‘add’ and cut the price target to 323p from 333p following recent share price strength.
The brokerage trimmed its full year 2015 earnings before interest and taxes and earnings per share estimates by 1.4% and 1.6% respectively, to reflect adverse football results, customer transition and aggressive customer acquisition activity by two of the other major operators.
Investec said the third point mentioned above poses a competitive threat to William Hill.
Investec cut its FY15E gross win margin in both retail and online, from 17.6% and 7.6%, to 17.5% and 7.4% respectively, to reflect weaker football results, as seen in Gala Coral’s current trading to 30 November.
It also lowered its FY15E online sportsbetting wagering growth from 6% to 4%.
It added that William Hill’s new customer promotions in online sportsbetting appear relatively less attractive than those of the other big six operators in the UK.
The brokerage also said the number of customers who visited Williamhill.com relative to its major peers is marginally lower than six months ago, showing a loss in brand presence and relatively weaker promotions.