Broker tips: Chemring, Thomas Cook, Retailers

24th Jan 2012 11:40

FinnCap has maintained its hold rating and 480p target price for military equipment maker Chemring following the firm's full-year results which the broker says were accompanied with a "fairly lacklustre outlook statement regarding NATO spending"."The shares have bounced by around 17% over the last months off low levels and it is likely these results will cause some weakness," predicted analyst David Buxton this morning.While Buxton did acknowledge that these results were lower than expected, he does "appreciate the improving dividend outlook".Charles Stanley has maintained its buy recommendation and 25p target for Thomas Cook despite reports of bookings falling 33% at the travel group over the first two weeks of the year.Charles Stanley analyst Douglas McNeill says "it would be unwise to read much into a snapshot of trading over a period as short as a fortnight." However, McNeill notes that Thomas Cook's performance may have fared considerably worse than TUI's due to the adverse publicity surrounding its finances as of late. He says that Thomas Cook's new management at the UK division believe that the firm's sales agents have been too keen to shift inventory early in the year and to offer discounts. "They want to see prices held for longer, in the belief that the product will eventually sell anyway - thus leading to a better overall margin. And that approach would, of course, mean fewer bookings in the early part of the year," McNeill explained.Nomura has maintained its neutral view on the 'European General Retail' sector, saying that while retail sales appear doing OK in January, the macroeconomic environment is still uncertain and sector valuations remain uncompelling.The broker draws attention to weekly data provided by John Lewis and the BDO, which suggests that underlying retail sales "may be holding up in January, following strong December sales." However, Nomura believes that the discretionary spending outlook is still under pressure. "We see no compelling valuation opportunity now, especially in the context of ongoing weakness in the macroeconomic environment and low consumer confidence."Taking a "stock-selective approach", the broker highlights Marks & Spencer, Dixons, Kingfisher and WH Smith in the current environment, all of which are given a buy rating, while Dixons is kept at neutral.BC