Broker tips: Domino's Pizza, Connaught

30th Mar 2010 12:56

Broker FinnCap has been waxing lyrical about the Domino's Pizza business model after the pizza delivery firm announced another strong set of trading figures on Tuesday morning, despite going up against tough comparative figures from a year ago.The secret of the company's success is certainly not down to the pizzas, but rather, in FinnCap's view, in 'the franchisee experience and economics, and the ability to provide these people with a slice of the good life.'FinnCap thinks that as long as people keep eating pizzas and the franchisees 'keep making money from our love of take away while watching TV gold like "Britain's Got Talent", this will remain a core long term holding.''It is "Two-for-Tuesday" today at Domino's, so buy a pizza and some shares,' FinnCap suggests.KBC Peel Hunt is also a fan of the stock, though the company's view of the pizzas is unknown. The broker has put an extra topping on its target price for the stock, raising it from 390p to 400p, and suggests that the new commissary at West Ashland, scheduled to be fully operational at the end of the next quarter, may drive earnings upgrades in May.Charles Stanley is baling out of Connaught, the integrated services provider operating in the social housing, environmental, public sector and compliance markets, having identified six key concerns about the company.'We see six main reasons behind the set back to the shares: 1. Poor cash generation; 2. Low and declining ROCE [return on capital employed] relative to peers; 3. Concern on the capitalisation and magnitude of software expenditure; 4. A £6.8m restructuring charge; 5. The injunction on the £125m five year Norwich contract; and 6. The sudden departure of Mark Davies, the former CEO [chief executive officer]. In our view, these factors are likely to remain a concern for some time going forward,' writes Charles Stanley analyst Matthew Earl.Having put its stock recommendation under review after the group's announcement of £6.8m restructuring plan in the middle of December the broker has pulled the trigger and switched its rating from 'buy' to 'sell', seeing more attractive opportunities elsewhere in the sector. It has also cuts its 2011 earnings estimate by 20%, 'principally reflecting our more conservative approach to amortisation of the group's software.'