Broker tips: Hays, Weir, Sports Direct

9th Oct 2015 13:21

(ShareCast News) - HSBC downgraded Hays to 'hold' from 'buy' and cut its price target to 140p from 200p.It said Hays' UK growth is slowing, as evidenced by the company's second-quarter trading update, and the bank's bull case was premised on accelerating growth and margin recovery."Until we get further evidence that such growth can pick up, we are unable to have conviction in our 'buy' case," the bank said.HSBC said the slowdown is worse than what the labour market data implies or sector peers, raising the question that this might be a company-specific problem."If this is a result of the company's inability to fill vacancies as the candidate scarcity emerges, the downside to our estimates and the multiples the market is willing to pay can be meaningful," it said.HSBC said downside risks include a focus on large accounts which may limit the company's ability to increase prices in future. In such a scenario, if the company cannot have a pull on the candidate pool, risk to profit growth can be meaningful, it said.Upside risks, however, would be that Hays' UK slowdown is a temporary phasing effect post elections. RBC Capital Markets cut Weir to 'underperform' from 'sector perform' and slashed its price target to 1,150p from 1,850p."Whilst Weir shares would respond quickly to signs of oilfield activity recovering, near term we suspect they might come under pressure," the Canadian bank said.It said the outlook for the oil & gas division is deteriorating and current consensus forecasts are around 10% too high.RBC noted that minerals sales/EBITA declined 8% and 11% respectively organically in the first half, with OEM sales declines offsetting the more resilient aftermarket . It added that since the first half, commodity prices have come under pressure.The bank said the oil & gas division is working hard on its cost base, targeting £55m lower annual costs by end 2015, but only so much can be done in the face of major price and volume declines.It now forecasts 2016 O&G sales/EBITA of £585m/£77m, down from £740m/£110m previously. Sports Direct International was under the cosh after Morgan Stanley downgraded the stock to 'equalweight' from ''overweight', keeping the price target at 680p, saying the risk/reward is now more balanced.It said that with 8% implied downside from the current share price, an 'equalweight' stance is more appropriate."We continue to like the Sports Direct story in the UK and remain open-minded on its overseas expansion. However, we no longer view the international business as a free option with the shares up nearly 20% in the last six months," it said.The bank pointed out there has been a lack of progress on M&A within Continental Europe and said there are question marks over how well key international market Austria is progressing.Still, the shares have risen by nearly 20% whereas consensus forecasts have been broadly flat.MS said that on an absolute and relative basis, therefore, the stock has re-rated.MS said upside risks to its view would include rapid share gains in SPD's current overseas investments and/or announcement of international acquisitions. A key downside risk would be a more direct challenge from Decathlon in its key markets.