Broker tips: Greggs, Vodafone, Marston's

17th Mar 2011 13:32

Greggs made good progress in 2010 against its shop roll-out and cost control plans, and this is expected to continue into 2011 despite a challenging retail environment, according to UBS.The popular bakery chain announced 2010 results Wednesday that were broadly in line with the broker expectations, with pre-tax profits 5% higher than estimates. Like-for-like (LfL) sales growth for the first 10 weeks of the current year was 0.4%, in line with company guidance and UBS's first half expectations of 0.5%.The company opened 93 shops and refitted 135 outlets in 2010, and established a new-style fit for the 'food to go' shops. The broker expects a further 80 to be opened in the current year with 160 refits (60 of which are to be in the new format)."We think this incremental space growth and brand development alongside initiatives such as fresh coffee and an enhanced breakfast range, should deliver mid single digit sales growth in 2011 with marginally positive LfL sales progression," says analyst Isabel Green.A 'buy' rating is maintained, while the target price is raised from 520p to 550p.In a note entitled 'Bap to the future', finnCap makes a case for upgrading its rating on Greggs from "hold" to "buy"."Greggs has several attractions in what appears set to remain a difficult UK retail market for the foreseeable future. It has a sustainable position as a discounter in a large defensive market," claims finnCap analyst David Stoddart. "The business has a long-term track record of healthy cash-generation. That was highlighted by last year's share buyback programme at the end of which Greggs retains a net cash balance, another source of strength. So far, management's attempts to drive structural change through the business appear to have been successful without causing cultural damage. This offers scope for further self-help gains to offset external pressures," Stoddart continued."In the longer term, there are opportunities to boost productivity in the stores as well as the earlier supply chain," Stoddart maintains.The broker has switched its target price calculation methodology from a figure based on 2010 earnings per share to a discounted cash flow model, and upped the target price to 540p from 465p.Nomura keeps its positive stance on mobile telecoms giant Vodafone following an 'open office' meeting with its managers, as good progress is being experienced across the board, with a particular significance on its position in the smartphone industry.The group's operational managers from Germany, Italy, Netherlands and the UK all indicated that their operations were gaining market share, according to the Japanese broker.The firm is focused on managing customer lifetime value across its units, and the broker says that the managers were confident that smartphones were increasing value on this measure, "aided by contract length extension and reducing churn", says analyst James Britton.The broker remains a 'buyer' of Vodafone with a target price of 220p.Evolution Securities was obviously invited to the same event. "We attended presentations from the German, Italian, UK and Dutch management teams. Having endured some lean times, UK and Dutch operations are in the midst of an impressive turnaround, while Italian and German management teams wrestle with the challenges of being an incumbent. The UK, especially, is taking advantage of the merger travails of "Everything Everywhere" and winning back market share. The Italian management team were impressive, but face a far tougher market backdrop, while German management's appraisal of its market opportunity was the least convincing, despite healthy market trends," the broker said.The broker has upgraded the stock to "neutral", pointing to the "well covered 5.4% diviend yield" as a good reason for sticking with the stock."This was not a "numbers day" and we are making no changes to our forecasts at this stage. However, the share price is now below our target and while we retain fundamental concerns over Vodafone's profitability in the long term, one could say the same of most companies in most industries in the short term. Relative to others, Vodafone should be relatively unaffected by supply chain problems (fewer handsets may even reduce churn), has few inflation worries and is a beneficiary of recent € strength," Evo noted. Credit Suisse raises forecasts at brewing and pubs group Marston's but remains cautious saying that there is a lack of near-term catalysts, given potential consumer headwinds.Estimates for 2011 remain unchanged but the 2012 and 2013 earnings forecasts are raised by 4% and 8%, respectively. "This reflects a positive impact from the managed new build development (where return on capital continues to exceed the company's 15% target), and a lower tax charge," says Credit Suisse.The group issued a "robust" trading update yesterday, according to the broker, reporting 3% managed like-for-like (LfL) sales growth in the last 7 weeks. "Tenanted LfL profits also turned positive for the first time since 2008, driven by the new retail agreements which continue to gain traction."The broker keeps a target price of 116p and 'neutral' rating, saying "Whilst trading momentum is solid, we prefer to stay cautious on UK consumer exposure."