Broker tips: Experian, Mitchells & Butlers, Spectris

19th May 2010 12:39

Preliminary results from credit checker Experian were ahead of expectations on the profits front but Charles Stanley says the key feature of the figures is the delivery of cash, with net debt tumbling from $2.1bn at the end of March 2009 to $1.6bn at the end of Mach 2010."The reduction in debt and the ongoing strong cash generation has encouraged Experian to improve its distribution to shareholders via dividends and introduce a $300m share buyback," Charles Stanley analyst Tony Shepard notes, adding that the good results and the increased distribution policy should be well received.Experian has disclosed that it intends to reduce earnings cover on its dividend pay out from 3.0 to 2.5 over the next year.For fiscal 2011 Charles Stanley is estimating earnings per share of around 67 cents, which would imply a dividend of about 27 cents. "On this basis, the share is on a prospective P/E [price/earnings ratio] of 13x and a dividend yield of 3.1%," Shepard notes.The broker has reiterated its "buy" recommendation on the stock. Pubs group Mitchells & Butlers was a rare bright feature on Wednesday morning after better than expected interim results and signs of improving trading prompted brokers to advise their clients to buy the shares.Panmure Gordon has lifted its profit before tax forecast for the current year by 5.6% to £151m, giving an earnings per share forecast of 26.2p. Earnings forecasts for fiscal 2011 and 2012 have been upped by 14% and 21% respectively "as we incorporate the lower end of the group's guidance on margin improvement from the Strategy Review announcement," Panmure Gordon said.With its new earnings forecasts the broker says the shares are trading on a 2010 calendar year (CY) projected price/earnings ratio of 10.8 and an enterprise value/earnings before interest, tax, depreciation and amortisation of 8.1. "These multiples fall to 9.2x and 7.4x respectively in CY 2011E," the broker adds.Panmure Gordon is forecasting a compound annualised growth rate in earnings per share of 14.8% over the next three years and reckons there are "plenty of positive catalysts to support positive momentum in the share price," prompting the broker to upgrade the stock from "hold" to "buy".Panmure Gordon's price target has been inceased from 295p to 369p. KBC Peel Hunt has its earnings forecasts under review and is maintaining its "buy" recommendation. It expects to upgrade its fiscal 2010 profit before tax by 3% to £159m, but is contemplating trimming its fiscal 2011 figure by 3% to £175m. "While the improvement in margin is welcome, the impact on LFL [like for like] sales in Q2 [second quarter] is equally obvious and adds to our caution on FY11E. Nevertheless we believe that Mitchells' commitment to rotate strategy in favour of the eating out means faster development than for most pub companies and should drive independent growth and value," KBC analyst Paul Hickman said.Broker KBC Peel Hunt is lifting its price target for engineering firm Spectris but downgrading the stock in view of the uncertain look for European markets in the second half of the year."The year-on-year comparatives get easier for May & June but then get steadily tougher through the second half. Given the uncertain outlook for Europe in H2 [second half of 2010] (37% of group revenues in 2009) and current sterling volatility, we are tempering our initial upgrade enthusiasm and increasing our FY10E [fiscal 2010 estimate] PBT [profit before tax] by 3% to £95m, this equates to an EPS of 62.5p," KBC analyst Dominic Convey said.The price target has been pushed up from 850p to 950p but the broker now considers a price/earnings ratio of 14.1 based on projected 2010 earnings, falling to 12 based on projected 2011 earnings, a "fair multiple" and has cuts its rating from "buy" to "hold".