Broker tips: Burberry, Tesco, Mouchel

6th Oct 2011 10:07

Seymour Pierce has kept its buy rating and 1,650p target price for British luxury brand Burberry, saying that the premium valuation to its peer group is justified."Despite the recent sell off in Burberry shares and the sector generally driven by macro concerns over a potential global slowdown and a hard China landing, we expect Burberry to report strong Q2 trading after a faultless Q1 performance. Focus will be on China's performance and for any evidence that US department stores will cut back wholesale orders for spring/summer 2012," said analyst Kate Calvert.The shares are trading on 16.7 times forwards earnings, and while this is above the peer group's (excluding Hermes) average multiple of 15, Seymour Pierce believes that this still "undervalues its long term growth potential."Evolution Securities has downgraded its rating for supermarket giant Tesco from neutral to reduce, saying it is concerned about falling UK trading margins in the second half.The broker thinks that Tesco is suffering from the impact of operational gearing on prolonged weak LFL sales."To reflect our concerns and our disappointment with Price Drop, we are cutting full year pre-tax profit by circa 5%, and moving to a reduce recommendation," the broker said.The target price is left at 350p.Investec has maintained its sell rating on Mouchel but placed its target price of 40p under review, after a blunder which sent shares tumbling over 40% on Thursday morning.Mouchel, which provides servicing and consultancy mainly to the public sector, claimed on 15 June that it would make a one off profit on a long term contract that would offset lower profitability elsewhere. That claim was wrong, the actual gain will be £4.3m lower than the market was first told. To make matters worse the new finance director has been through the books and has decided to increase provisions for contract risks by roughly another £4m.Evolution Securities said that it is likely to lower its full-year pre-tax profit forecast £14.3m to around £5m.BC