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The Expert View: Burberry, Imperial Brands and Bunzl
Our daily roundup of analyst commentary on shares, also including Associated British Foods and Rentokil.
on Apr 20, 2017 at 05:00
Hargreaves Lansdown: Burberry can’t just rely on currency moves
Burberry (BRBY) revenues may be up but Hargreaves Lansdown said the designer fashion brand could not rely on currency moves for a revenue boost.
The group reported half-year revenues up 14% to £1.6 billion but after stripping out favourable currency moves, this represented a 1% decline. Shares at the time of writing were trading down 5.1%, or 87p, at £16.13.
Analyst George Salmon said the UK sales ‘continued to surge ahead, as credit card-wielding tourists with expensive tastes flock to these shores to take advantage of sterling’s weakness and pick up a currency-induced bargain’.
‘However, as ever with currency, there are two sides to the coin. The dollar’s strength is holding back sales in the US,’ he said.
Burberry also continues to struggle in key Asian markets such as Hong Kong and Korea. Salmon also questioned Burberry’s deal to licence out its beauty products to cosmetics group Coty as ‘having only bought Interparfums out of a similar deal in 2013, this marked a pretty sharp U-turn for the group’.
Back ABF for a decade of secular growth, says Liberum
Primark owner Associated British Foods (ABF) is offering ‘compelling exposure’ to secular growth trends for the next decade, says Liberum.
Analyst Robert Waldschmidt reiterated his ‘buy’ recommendation and target price of £31.00 on the stock after first half results the showed operating profit grew 36% year-on-year to £652 million. Earnings per share also increased 30% year-on-year.
The shares were trading up 1.8%, or 50p, at £27.67 at the time of writing.
‘Associated British Foods offers investors compelling exposure to secular growth trends in retail over the next 10 years,’ he said.
‘Primark remains well positioned to take market share and drive mid-teens sales growth in full year 2017/18…while Primark’s margin takes a hit near term from adverse transactional foreign exchange, there is scope for positive surprise if the industry raises prices to compensate higher sourcing costs.’
Bunzl can add value for shareholders, says Shore Capital
Shore Capital is predicting strengthening growth at outsourcing group Bunzl (BNZL) this year and its ability to create value for shareholders.
Analyst Robin Speakman retained his ‘hold’ recommendation on the stock after the company reported first quarter revenue increased on the back of new business wins and acquisitions.
At the time of writing the stock was trading down 1.2%, or 28p, at £23.03.
‘Through the remainder of full-year 2017 we expect the organic performance to steadily strengthen towards the mid-single digit rate, led by North America and recovery in the rest of the world,’ he said.
‘We are firm supporters of Bunzl’s value creation model for shareholders, our “hold” stance reflects a view of a full valuation at present.’
Imperial Brands underappreciated, says Jefferies
The merits of tobacco giant Imperial Brands (IMB) are still not fully appreciated, according to Jefferies, which is expecting a re-rating of the stock.
Analyst Owen Bennett retained his ‘buy’ recommendation and target price of £44.00 on the stock, which was trading down 1.4%, or 54p, at £37.64 at the time of writing.
‘On resuming coverage last year, we argued the merits of Imperial’s new strategy – and therefore its returns outlook – were not fully appreciated,’ he said.
‘This remains the case and we would expect the stock to re-rate as conviction grows. We also see an increasing probability of a take out in the near term. Even with no re-rating or bid, the stock remains attractive.’
Peel Hunt: Rentokil strengthening business portfolio
Pest control company Rentokil Initial (RTO) is increasing the high margin, stable parts of its business and Peel Hunt said this would be accelerated by mergers and acquisitions in future.
Analyst Christopher Bamberry retained his ‘buy’ recommendation and target price of 242p on the stock after a first quarter trading update. The shares were trading down 1.5%, or 3.7p, at 243p at the time of writing.
‘The rate of organic revenue growth was consistent with 2016,’ he said. ‘The continuing mix shift within the portfolio towards the higher growth/ higher margin pest control activities, which will be accelerated by the increased mergers and acquisitions capacity post the Haniel joint venture, should compound profits growth at an increasing rate.’
The shares currently trade on 18.9 times 2018 estimated earnings per share.
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- Burberry Group PLC (BRBY.L)
- Rentokil Initial PLC (RTO.L)
- Imperial Brands PLC (IMB.L)
- Bunzl plc (BNZL.L)
- Associated British Foods PLC (ABF.L)