Broker tips: Game, QinetiQ, Albemarle and Bond

28th Sep 2010 12:52

KBC Peel Hunt was braced for bad news from Game Group but the video game retailer's interim figures were worse than feared, prompting the broker to cut its full year forecasts."Game Group has announced interim losses of £18.8m, worse than our £14.1m forecast, driven by LFL [like for like] declines and a sharper pricing strategy. We are downgrading our 2011E profit before tax by £8m to £42m, although our 2012E forecast remains unchanged, as new product drives performance," Peel Hunt analyst John Stevenson said.The broker is sticking with its "hold" recommendation, though it expects some short-term turbulence in the wake of the disappointing interim figures."While losses are wider, there is little new information to change views. Indeed, current trade, little changed from H1 [first half], is irrelevant in relation to peak trading and future product releases. We see profits driven more by the hardware cycle rather than online competition at this time, although it will likely take the release of [Microsoft's] Kinect and the Nintendo 3DS and the subsequent pick-up in LFL sales and absolute gross profit to provide support and forward momentum for the share price," Stevenson concludes.QinetiQ, the formerly state-owned defence technology firm, expects to meet market expectations this year but Investec still thinks there might be a bit of shaving of the numbers from analysts at the upper end of range of forecasts."The outlook remains extremely uncertain particularly against the backdrop of the UK's Strategic Defence and Security Review and in the US where spending priorities relevant to the group are under the spotlight," notes Investec analyst Andrew Gollan."Self-help restructuring measures underway afford some protection, but the financial performance of the group is still beholden to the risk of further contract delays," Gollan added. The company said in a trading statement on Tuesday that "decisions on orders continue to be delayed across the sector and visibility remains limited, particularly in the UK."Investec is leaving its full-year forecasts for 2010 unchanged, at least for now, but then its numbers are near the bottom of the range; Investec is predicting earnings per share (EPS) of 11.4p, whereas the median figure from a range of analysts' forecasts is 12.93p."For 2011, it is simply too early to make a confident call on forecasts (we currently estimate a broadly flat financial performance of 11.7p)," the broker said. Market consensus for 2011 is for EPS of 14.06p.The ambitious expansion plans of Albemarle & Bond should generate profit growth for the pawnbroker but FinnCap thinks earnings per share growth will be restrained in the short term.The company intends to open 25 new stores in 2011, which represents a 19% increase in the size of the retail estate."Underpinning the group's confidence in its store opening programme is the belief that the UK could accommodate a structurally higher number of outlets (over twice on US comparative numbers) than the 1100 estimated at present. Naturally competitors think likewise, despite the traditionally modest growth rates seen in the pawnbroking sector but the format has widened to include financial services and gold buying," notes FinnCap analyst Duncan Hall.Gold buying contributed £11.5m of gross profit and "gold buying profits look likely to remain an important part of the profit mix, especially as the gold price remains high," Hall predicts.The broker has a "buy" recommendation for the stock and, using a price/earnings ratio of 11.0, a target price of 300p