Broker tips: Domino's Pizza, Majestic Wine, Electrocomponents

16th Nov 2009 12:59

Shares in Domino's Pizza have risen by a third in price since the beginning of September, prompting Charles Stanley to downgrade its rating, despite the pizza delivery outfit issuing another upbeat trading statement on Monday morning.The company has announced its intention to buy back 6m shares at 317p each, which Charles Stanley sees as 'a clear expression of the group's confidence in current cash flows.'Charles Stanley has left its 12-month price target unchanged at 365p, but has shifted its recommendation from 'buy' to 'add'. 'However, we retain our full year PBT [profit before tax] expectation for FY09 of £28.2m, which we believe remains slightly above consensus,' the broker concluded. Nomura Securities has bumped up its price target for Electrocomponents after the electrical parts company's trading update on Friday, but remains concerned about pressure on margins.'Sales trends have recently improved, which could have geared impact on bottom line,' the broker said, explaining its decision to move up its forecasts for earnings before interest, tax and amortisation for the current year and next by around 8%'Earnings upgrades imply lower dividend risk, but we remain concerned about gross margin erosion, particularly as management seems to pursue greater pricing flexibility than before,' said Nomura analyst Marc Van't Sant.Nomura retains its 'underweight' recommendation on the shares but has bumped up its price target to 150p. Vintner Majestic Wine had a good summer and is 'well positioned' for the all-important Christmas trading period, prompting brokers to raise a glass to the wine seller.'We had anticipated a benefit from the best UK summer for several years but had materially under-estimated the extent of the uplift. It is clear that our forecasts need to increase to reflect the better than expected interims and the strong start to the second half,' confessed Altium Securities analyst David Stoddart.The broker intends to bump up its 2010 pre-tax profit forecast substantially, and sees continued growth in profits in 2011, although the forecast is clouded by the excise duty and VAT position after next year's general election.'By the end of Majestic's first half in 2011, a new government might already have increased VAT and alcohol duties. It would be surprising if that had not happened by the end of 2011. We therefore err on the side of caution in modelling sales growth beyond the current year,' Stoddart said.Altium has lifted its price target for Majestic but kept its recommendation unchanged at 'hold'.Investec has also increased its price target, from 230p to 280p, and upgraded the stock from 'hold' to 'buy'. 'Majestic remains well capitalised and well placed for further expansion, which warrants a higher valuation in our view,' the broker said.