Broker tips: Hammerson, French Connection, Taylor Wimpey

3rd Aug 2010 12:43

Panmure Gordon has its target price for Hammerson under review after the property company reported an encouraging set of results."We believe the business is in good shape for the future with a resilient balance sheet and an attractive collection of assets. That said, we continue to feel that the company's exposure to UK shopping centres and more sluggish French property market continues to take the edge off the attractive opportunities presented by London offices," the broker said. Despite those misgivings the broker believes the shares are not expensive and is comfortable with its current rating of "hold" for the shares.The broker looks set to bump up its forecasts for adjusted profits and net asset value after Tuesday's figures. "Looking at the rental markets, we believe that the prospects for continued growth in London offices remain encouraging, underpinned by a fundamental imbalance between growing demand (particularly in 2014 and 2015 that will see significant lease expiries). Hammerson looks well placed through a combination of existing assets, coupled with future development schemes and further potential capital recycling," Panmure Gordon opined.That's the good news. "The retail picture looks less rosy, as consumer confidence has taken a downtown in both the UK and France, and the outlook for retail sales growth remains fragile. The concern is perhaps being felt most at shopping centres, where the company has lost tenants on lease expiries and short-term lets are being agreed at 25-30% below ERV [estimated retail value]," the broker continued.Sticking with the retail sector, 'cash is king' asserts finnCap, and under pressure fashion retailer French Connection has enough of it to survive until the good times return, at which time operational gearing will kick in."French Connection closed FY10 [fiscal 2010] with £35.7m of net cash. We expect that to dip slightly to £34.7m by the end of FY11. This underpins more than 70% of the market capitalisation. Importantly it also provides the group with the financial strength to ride out trading difficulties for many years. It should therefore be around when a full-blown economic recovery finally arrives, whenever that is," finnCap analyst David Stoddart predicts.Stoddart thinks the company is conservatively valued and highly leveraged, so when the recovery comes it should come hard and fast for French Connection. The broker's price target is 60p, "above the 50p mark that has represented a ceiling in the past three quarters." finnCap has started coverage of the stock with a "buy" rating."The business also appears cheap relative to book value ... Book value is c.89p per share. However, this includes fixtures and fittings which have little value unless French Connection remains a going concern. On the other hand, inventory is still selling through at a group gross margin close to 50%. If one re-valued stock to reflect that potential, and taxed the notional profit, and then deducted the entire value of fixtures and fittings, the resulting 'adjusted' book value would be c.84p, well ahead of our target price," Stoddart notes.A set of results from a housebuilder is usually a cue for KBC Peel Hunt's house builders analyst to issue a bearish note, and the interim figures from Taylor Woodrow on Tuesday lured the bear from his lair once again.Robin Hardy of KBC Peel Hunt acknowledged that profit before tax beat market consensus and the UK margins were stronger than expected but he still has concerns about trading prospects for the rest of the year and also 2011, while he still sees specific risks for Taylor Wimpey around its need to refinance its debt."The main issue with debt for us remains the refinancing process where the banks are likely to have to materially increase their exposure to the group as commercial paper matures and is unlikely to be replaced. We remain concerned that the disposal of the North American businesses were taken too much for granted and that the covenants tests and renewal process may not be more onerous than the group had been expecting when the new facilities were put in place last year," Hardy said.Using its new valuation methodology, which entails determining a notional net asset value that would be required to drive an acceptable return on capital employed that would be above the cost of capital, the broker's price target is 21p. With the shares trading fully 10p above that level on the day the results were announced the broker is, not surprisingly, sticking with its "sell" recommendation.