Broker tips: M&S, DSG, Redrow...

26th Apr 2010 13:31

Boffins at Nomura predict further scope for upgrades across the UK general retail sector in 2010 as data continues to beat expectations.Despite ongoing concerns around the UK election and rising inflation, the bank's HCF model continues to indicate a positive expenditure outcome for the UK this year. "We therefore place a short-term trading buy on the UK general retail sector and expect earnings upgrades to drive outperformance," it said in a note to clients.The Japanese broker likes high street favourite M&S and DSG International, which owns Currys and PC World.Cookson's forecast for a first half trading profit of £110m to £115m, 15% to 20% better than in the second half of 2009, got investors excited Monday.The new number is 16% ahead of Panmure Gordon's estimate of £98m, while revenue is now seen topping its forecast by 13%. Global steel production has grown at a faster rate than previously anticipated, as have electronics end-markets, while the precious metals unit continues to benefit from very high levels of reclaim business.Killik Capital reckons other industrial goods companies will be experiencing similar trends and expects earnings momentum to remain positive. "We would therefore remain invested in the sector where our preferred holdings are Melrose and Charter," it said.Redrow today issued a largely positive trading update, but KBC Peel Hunt warns that the share price may have got ahead of events.The housebuilder expects to return to profitability in the second half against the consensus of break-even."This is positive momentum but the rating is still very high," says KBC, which also moved to cool excitement at any potential read-across from recent strong data out of the US.Redrow is also predicting a tough 2010 due to uncertainties surrounding the election, the economic environment and continued restrictions on mortgage availability."The consensus EPS for June 2011 is still only around 3p so a PE of 50x. While there will be improvements from there, the growth required for a 'normal' sector rating by mid cycle is a six-fold increase from there," the broker says. "This looks demanding".Despite the return of founder Steve Morgan to the helm in March last year, KBC thinks the share price is "expecting too much".It rates the stock a "sell" with 110p price target.