Broker tips: Halfords, JD Sports, Synchronica

10th Jun 2010 12:37

Car parts and cycles retailer Halfords is a good defensive play but it also has plenty of growth potential, KBC Peel Hunt reckons."Management has set out a target of delivering average annual EPS [earnings per share] growth of 15% going forward, a measure that suggests material upside to our medium-term estimates," notes KBC Peel Hunt analyst John Stevenson. The broker is forecasting EPS growth of 16.5% for fiscal 2011, followed by two years of 7% growth rates.Based on KBC projected figure for EPS for 2011, the stock is trading on a price/earnings ratio of 10.8. "With upgrade potential, despite the headwinds of higher taxation and spending cuts, we expect Halfords to continue to outperform the retail sector and deliver absolute share price gains," KBC predicts.FinnCap has bumped up its profit forecasts for JD Sports after the trainers and tracksuits chain's trading update, and also raised its price target."In recognition of the extent to which JD is ahead of our H1 [first half] forecasts we have increased our LFL [like for like] sales and gross margin assumptions for Sport and Fashion," FinnCap analyst David Stoddart said.The broker now expects a 5% LFL year on year increase in the Sport division, up from its previous forecast of a 3% gain, and a 1% decline in LFL sales in the Fashion division, compared to its previous forecast of a 3.5% decline.Forecasts for the second half of the current year have been left unchanged as the broker is waiting on this month's Budget to see which way the wind is blowing for retailers.FinnCap has also increased its 2011 pre-tax profit forecast from £70.6m to £74.6m and its earnings per share estimate from 101.6p to 107.4p after the company this week cemented its reputation for outperforming market expectations.The shares are rated a "buy" and the price target has been cranked up to 1075p from 1020p. Stoddart believes the size of the stock's discount to its peers is undeserved, although he acknowledges that as the shares are tightly owned the limited liquidity is going to weigh on the shares."Arguably a discount is warranted on the new, as yet unproven, businesses JD has acquired. However, none of these points is sufficient, in our book, to justify the valuation gaps to sector peers, especially in the light of the latest example of JD's tendency to outperform expectations," Stoddart concludes.Equity Development is keeping its current year revenue forecasts unchanged for mobile phone messaging group Synchronica despite the company's struggles in converting its sales pipeline into revenues.The research firm said "the revenue shortfall masked significant improvements in 2009, with 13 new mobile operator contracts and the launch of the low cost MessagePhone, which has been followed in 2010 with eight new contracts to date, including two for the MessagePhone, an upgraded product suite, and the acquisition of Colibria's Instant Messaging business. ""The current share price weakness, whilst an understandable reaction to the revenue shortfall, does not, in our view, reflect the strategic value of the company," it added.