Broker tips: Burberry, Informa, Mothercare

17th Nov 2010 12:45

Despite Burberry's first half results beating forecasts, Nomura has maintained its neutral stance on the stock, not seeing much in the near term to excite investors.Several elements of the fashion retailer's business have given "confidence in the opportunity for continued profit growth", says the broker, including increasing monthly flow of goods, digital media brand development and strong leather goods and outwear sales, but growth in the second half of the year is expected to be more modest than in the first half while full year cost guidance has been maintained.Nomura believes the luxury fashion label has the potential for increased retail productivity in newly acquired Chinese stores, as well as through its entry in to India and Brazil, but that's over the medium term. Full year profit before tax forecasts have been raised by £5m but the target price of 1,020p and the 'neutral' rating have both been left untouched. The $729m fund raising through a US placing of loan notes will reduce net debt at Informa and should provide a boost to the shares, KBC Peel Hunt believes.Apart from the news of the fund raising, there was not a lot in the business publisher's interim management statement to get excited about, and even less to get worried about. "There is no change to numbers for the current year, but we expect that the reduction in group debt will go down well with the market to lift the shares" says the broker. Based on Peel Hunt's projected earnings for the 2011 fiscal year the shares trade on price/earnings ratio of 13. The broker thinks that could stand to go a bit higher, and has projected a target price of 506p. The "buy" recommendation is maintained.Mothercare's interims disappointed finnCap, particularly the weakness of the UK operation, leaving broker finnCap disinclined to change its negative view of the stock.The adjusted pre-tax profit for the half year to October stood at £12.2m, below the £12.9m finnCap expected. "What's more, this was delivered after a lower share-based payments charge (£2m v £4.5m) than we had assumed", the broker said.Therefore, underlying earnings before interest and tax was a little weaker than the broker had modelled."A series of acquisitions and a build-up of working capital ahead of the 'mini club' launch meant that Mothercare tipped into net debt at the interim stage. Nevertheless, Mothercare has upped the interim dividend 16.4% to 6.4p". UK sales declined 0.4%, with retail sales sliding 2.1%. Like-for-like sales fell by 3.8% and due to freight costs and currency pressures, gross margins slipped 1.5 percentage points.Despite international profit being £2m higher than expected at £15.8m (a 34% increase), a net debt of £8.6m compared to a cash balance of £8.2m last year disappointed the broker. In addition, the broker notes that the pension fund deficit increased from £44.5m to £64m.A 'sell' rating is retained with a target price of 440p.