Broker tips: Domino's, Game, Euromoney

29th Sep 2010 13:21

Pizza delivery firm Domino's issued another upbeat trading update on Wednesday morning but strong execution by management is already reflected in the share price in the view of KBC Peel Hunt."Although the company has previously indicated an intention to distribute cash to the value or profit after tax, there is no announcement yet. We estimate that a buyback could be 1 - 2% enhancing. We do not expect this to coincide with directors' share sales as the directors sold 3m shares two weeks ago," Peel Hunt analyst Paul Hickman noted.The broker is upgrading its full year profit before tax forecasts by 2.5% to £36.6m; that translates to a similar percentage rise in earnings per share to 16.9p. "Today's upgrade gives 21% earnings growth against 25.9% for 2009. It would not surprise us if there were further upgrades in Q4 [fourth quarter]," Hickman said.The broker is sticking with its "hold" recommendation on the shares. "Although a core sector holding, we believe the shares may consolidate recent gains in the short term," it said.FinnCap has initiated coverage on video game retailer Game Group and its first impressions are negative, with the broker seeing both short-term and long-term challenges for the group."In the short run both the console and economic cycles appear unhelpful. In the longer-term the trend for retail business to desert the high street and the likelihood that downloading will increase as a route to market threaten the viability of many of its stores," said FinnCap analyst David Stoddart.Recent interim results showed losses that were not as bad as FinnCap had feared. Pre-tax loss was £18.8m, versus the broker's forecast of £19.9m. "The shape of that result was also very different from our expectation. Sales were better than we feared but this was largely offset by a weaker than expected gross margin. Game also booked a £2.7m exceptional charge which was a first instalment on a full-year expense estimated at £10-12m," Stoddart noted."The good news is that the videogames market is relatively immature as a consumer entertainment market. Nevertheless it is a large market and retains potential to grow. The bad news is that the next console cycle appears to be some way off and the outlook for the consumer economy in 2011 is less than encouraging. In the longer term structural changes to both the retail and videogames markets pose challenges for Game's high street estate. A discount valuation therefore appears justified. We initiate with a 50p price target and a sell recommendation," the broker said. Singer Capital Markets has lifted its earnings forecasts and target price for Euromoney Institutional Investor after the business publisher's upbeat pre-close statement last week.The broker has cranked up its earnings per share (EPS) forecasts for the current year and next by just under 5% to 52.0p and 56.1p respectively. Singer is now looking for Euromoney to pay dividends of 17.3p this year and 19.0p next, an upgrade of 9.5% on its previous position.The target price has been lifted to 753p from 745p. The new target price equates to a price/earnings ratio of 13 based on projected earnings for calendar 2011. "This is a significant discount to the long-term average (15x), but intentionally reflects the limitation of current equity valuations," the broker said.The broker expects subscription growth next year to be stronger than it had previously assumed, but it has reined in its growth assumptions for the rest of the revenue lines, as they have lower visibility."While there have been some persistent concerns over the profit outlook for investment banks (a small element of the customer base), material headcount reductions have not materialised and nor is any weakness showing up in Euromoney's trading outlook for Q1 FY'11 [first quarter of fiscal 2011]," said Singer analyst Johnathan Barrett."We note the strength in the core subscription business and at this stage take the view that the few relatively modest headcount reductions reported are part of the normal background," Barrett added.KBC Peel Hunt is another broker ratcheting up its forecasts. Profit before tax and EPS expectations have been moved up by 5% and 3% respectively, and the target price has been lifted to 705p from 675p, which, as with Singer, implies a projected price/earnings ratio of 13 (but based on Peel Hunt's earnings projection).The broker has retained its "buy" recommendation.