Broker tips: Fuller's, Brit, Halfords

11th Jun 2010 13:33

Results from Fuller, Smith & Turner have, like a pint of the brewer's London Pride, gone down well.After a better than expected set of results from the brewer and pubs group owner Panmure Gordon has reiterated its "buy" recommendation and 614p price target."Fuller's continues to offer a rare and compelling combination of earnings and dividend growth, is conservatively financed, and offers good forecast upgrade potential. Yet the group is trading on only a small EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] premium to the peer group; we view this as anomalous," the broker suggests.KBC Peel Hunt says the company has "a very well operated South of England [pubs] estate" but says management is right to be cautious about the outlook for the consumer. Nevertheless, "as these results demonstrate, the group is well placed in what is likely to be a challenging market."KBC has upgraded its mid-range profit before tax forecast for fiscal 2011 by 3% to £27.1m and its earnings per share estimate is edged up to 34.1p from 33.1p, putting the share on a prospective price/earnings ratio of 16.It rates the shares a "hold" and has a price target of 540p, slightly below the current share price.Singer Capital Markets has nudged up its price target for Halfords after the car parts and cycles retailer delivered what it called a strong set of results, and is advising clients to resist the temptation to take profits on the stock.Based on Singer's projected earnings for fiscal 2011 Halfords trades on a price/earnings ratio of 11.3, which represents around a 4% premium to the sector."We do not believe this fairly reflects the quality of the group's earnings profile which is driven by a defensive, needs-driven, offer and market-leading positions," the broker states.Singer notes that the recent acquisition of Nationwide Autocentres has increased the proportion of Halford's gross profit that is derived from non-discretionary and reliable revenue streams."The dividend yield is also attractive at 4.4% to March 11 and debt levels are set to reduce rapidly, paving the way for further strategic acquisitions," the broker adds.The price target has been bumped up to 585p from 550p whole the "buy" recommendation has been reiterated."The shares have had a great run since the start of the year (+33%) and although it may be tempting for holders to take some profits off the table, we continue to believe that Halfords should rerate further and there is justification for a premium rating given the earnings quality and toughening consumer backdrop," Singer said.The bid approach for insurance underwriter Brit should highlight how undervalued the sector is, KBC Peel Hunt reckons.Reports indicate that the indicative offer for Brit was £10 a share, a price which, in KBC's view, comfortably undervalues the company."Our valuation approach suggest fair value could be £10.75, which at a 3% discount to prospective NTA [net tangible assets] would be a more palatable take-out multiple," KBC analyst Christian Stobbs."Clearly if we see a resumption of predatory interest in the sector it should be positive for valuations even if the deal/deals do not end up being consummated. Though there is no certainty that any revised offers will be made for Brit, its current 32% discount to prospective NTA clearly makes for an attractive investment opportunity in terms of the potential financial engineering benefits. With this in mind, it is interesting to note that wide discounts exist elsewhere in the sector, at Chaucer (0.75x NTA) and Novae (0.68x NTA)," Stobbs observes.