Broker tips: Kingfisher, Topps Tiles, Antofagasta

31st Mar 2010 13:20

UBS has retained its 'buy' recommendation for Kingfisher following the DIY retailer's recent full year results, though it has a few gripes about the dividend payment.'Cash flow was again better than expected (YE net debt £250m) and this will fund higher capex [capital expenditure] in 10-11. The dividend was raised for the first time in 5 years, although the payment was below our expectations, as was the decision to hold the next interim,' UBS said.The broker has kept is 2011 profit before tax forecast unchanged at £630m, putting it some £10m below market consensus. 'There is downside risk from cautious comments on current trading, although there should be enough flex in the gross margin and especially costs to absorb any short term impact. The weather may continue to be a major factor,' UBS warns.The price target is maintained at 265p, based on a sum of the parts valuation.The share price of Topps Tiles developed a few cracks on Wednesday morning after the tile and flooring specialist reported a slow-down in like for like (LFL) sales growth in recent weeks, which may cause Singer Capital Markets to reappraise its verdict that the share price represents 'fair value'.With the shares languishing at around 55p at the end of the morning session Singer's target price of 69.5p suggests the broker will soon be contemplating an upgrade to its rating, or rethinking its price target. The 'snap' release from Singer Capital Markets (SCMe) following the trading update looks to be leaning towards the latter course.'This statement suggests that full year LFL assumptions are too optimistic and need to be adjusted down by around 2-3%. We suggest that each 1% is worth around £1m, implying today's downgrade could be £2-3m, broadly taking forecasts back to last year's level (FY'09, £16.3m PBT), equivalent to a downgrade of about 15-20% (vs SCMe £19.4m, £19.9m),' the broker said.'Prior to any changes today, Topps was trading on a cal'10 PER [calendar 2010 price/earnings ratio] of 8.1x or 5.4x EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation]. As we indicated in our recent note ... though we were nervous about recovery hopes and although the shares have fallen already we would expect today's update to result in further weakness,' Singer predicted, accurately calling the market's reaction to the figures.Natural resource specialist Fox Davies Capital has commenced coverage of Chilean copper miner Antofagasta with a 'hold' recommendation and a discounted cash flow valuation of the shares of 985p.'We have run all the mines life of mine with the exception of Los Pelambres. In the Los Pelambres case we have mined all the reserves but there are ample resources left to keep the mine going for many more years past the 2035 when our modelling ceases,' the broker said, as part of a lengthy explanation of its modelling assumptions, from which it derived its price target.