Broker tips: Coca Cola HBC, Poundland, Kentz

16th May 2014 13:11

Credit Suisse issued a 'neutral' rating for Coca-Cola HBC after the bottling company reported a fall in first quarter revenue and volumes.The second largest bottler of the brands of The Coca-Cola Company said volume declined by 4% to 409.6 cases in the three months to March 28th and new sales revenue fell 7% to €1.3bn. It blamed the timing of Easter and foreign exchange movements. Despite the challenging trading conditions, the company's expectations for the full-year remained unchanged."The first quarter is always a small quarter and liable to sharp swings so should never be extrapolated for the year," Credit Suisse said. "That said the group is off to a slow start with volumes down 4% (we had -2.6%) with the deleverage impacting margins and an operating loss of €27m (we had -€12m)." Despite the 15 per cent fall in the shares since their stock market debut and the limited information out from the company since then analysts at Credit Suisse upgraded their view on Poundland to 'outperform' from 'neutral' on Friday. To back that decision up they called attention to the quality discounter's price competitiveness and niche position, as well as its valuation relative to the sector. In branded food/health&personal care (Food/HPC) there is a 30% price gap between the value discounters and supermarkets, the broker pointed out. That differential climbs to 50% in convenience, they added. "[...] we don't see how they can meaningfully close the gap."As well, Poundland's Food/HPC sales of circa £300m per year, with an average basket of £3, are irrelevant when compared to the likes of Aldi/Lidl/Iceland's sales figures, they argued. In the case of Tesco the relevant magnitude was £40bn.The Swiss broker further estimated that sales and profits would expand at average rates of 15% and 21%, respectively, over the coming five years, with a cash conversion ratio of 100%. That put them on a forward price-to-earnings ratio of 23. A comparison with its peer group yielded a forward price target for the stock of 400p.Nevertheless, the company needs to deliver on "stores, rising margins and the Spanish trial, but we believe this risk is largely discounted," these analysts further pointed said. Kentz's interim statement on Friday paints an optimistic growth picture for 2014 and beyond, according to Investec.The engineer said it achieved higher order intake and backlogs in the year to date. Backlog at the end of April was $4.5bn, up from $2.8bn a year earlier, and order intake came to $1.8bn in the first four months, compared to £1.7bn last year."The key number is its $4.5bn order book, +47% since end-2013 and up a further 10% since the most recently disclosed figure at end-February," Investec said. "We leave our forecasts unchanged but believe the recent pull-back in the share price offers an attractive entry point. Buy."The broker issued a target price of 810p and said Kentz is trading on a 2014/15 price to earnings multiple of 10.9x, a 13% discount versus Investec's sector average and a 16% discount versus its target sector."We see a 5% discount as achievable given Kentz's earnings growth, strong bid pipeline and financial strength. his implies a target price of 810p. Key risks are commodity prices/client spending levels."AB