Broker tips: Home Retail, Debenhams, Hilton Food

14th Sep 2010 12:49

If you have shares in Home Retail Group, take advantage of any share price strength to reduce your holding, is the advice from Nomura Securities, which sees an uncertain outlook for the retailer.The retailer's Argos brand is suffering from "falling margins, low growth and a lack of product emphasis" in the view of Nomura analyst Christopher Walker. "The Argos business model is not broken," Walker asserts, but the positioning of the catalogue retailer has "emphasised its cyclicality.""A solution of rebranding and store refits will help to deliver a more aspirational brand, but further product focus is needed, in our view. 'Must have' items at the best price and aspirational ranges may widen the appeal of the brand, helping to expand cash margins, while not isolating the core customer base," the broker maintains.The share price is trading a little above Nomura's price target of 200p. The broker has a "reduce" recommendation for the stock.Elsewhere in the retail sector, owever, FinnCap is sticking with its positive rating on Debenhams after the department store group's pre-close trading statement."The department store remains one of the strongest formats in the high street and provides a strong platform from which to develop an online business," reckons FinnCap analyst David Stoddart.Stoddart believes concerns in the market about Debenhams' gearing are overblown. "Year end net debt will be lower than consensus. Nevertheless, we expect Debenhams to carry over £0.5bn of net debt into the new financial year," Stoddart predicted. The debt burden is presumably "one of the reasons for the shares' discount rating," Stoddart suggest."However, topically in the light of proposed changes to international financial reporting standard, on a lease-adjusted basis, Debenhams' leverage is not amongst the highest in the sector. Indeed, it ranks only 14th out of the 21 companies for which we measure lease-adjusted net debt/EBITDAR [earnings before interest, tax, depreciation, amortisation and rent] . This results from the advantage that department stores enjoy in relation to occupancy costs," Stoddart noted.After management indicated that full year profit before tax will be in the region of £150m FinnCap will be adjusting its current forecast of £146.9m. For the time being at least the share price target remains unchanged at 100p, as does the "buy" recommendation.Results from meatpacker Hilton Food were in line with KBC Peel Hunt's expectations but the broker has downgraded its recommendation for the stock anyway after the share's recent good run."First half profits were up 12% to £11.5m, which was similar to our forecast. This was driven by a 5% increase in earnings before interest and tax (EBIT) and lower borrowing costs," KBC analyst Charles Hall noted.Sales also increased 5% and lagged behind volume growth of 11% as a result of lower raw material costs and a change in the sales mix.The share price is up more than 40% year to date and has risen above the broker's target price of 270p, as a result of which the recommendation has been changed from "buy" to "hold".