Broker tips: M&S, electrical retailers, Serco

26th Aug 2009 13:10

Singer Capital Markets has lifted its target price for food and clothing retailer Marks & Spencer while maintaining its 'hold' rating.'Although heavily indebted and exposed to a large pension scheme where actuarial liabilities are likely rising, the investment case for M&S has stabilised as self-help and strategic action combine with a moderation in the decline in consumer spending,' the broker argues.Singer is marginally above consensus with its earnings forecast for the year to March 2011, with its numbers based on a 2.4% increase in like-for-like in non-food sales, an improvement which the broker does not regard as a 'slam dunk'.'The main risk, as with other general retailers, is that trading might weaken again next year, in part due to strong seasonal comparatives. This could potentially reverse part of the upgrade cycle seen thus far in 2009,' Singer said.Singer's price target has been lifted by almost one-fifth to 320p, in part to reflect the higher prevailing sector valuations.Japanese broker Nomura Securities has been looking at the UK electrical retail sector ahead of the entrance, in partnership with Carphone Warehouse, of US player, Best Buy, and tips DSG International as the best stock to be holding.Nomura notes that 50% to 60% of DSG's Currys and PC World stores will be refitted by Christmas 2010 as it seeks to reposition the business as a service-led electrical specialist. This ongoing transformation has not been reflected in the company's share price in Nomura's view, and the broker has reiterated its 'buy' recommendation and 35p price target.'KESA may need a more differentiated approach: Despite being early to the service-led model, the UK offering is not sufficiently differentiated, making KESA more vulnerable if Best Buy fulfils its potential, in our view,' Nomura's Christopher Walker said.Carphone Warehouse, meanwhile, offers 'investors a free option on a successful retail launch' by Best Buy, in Nomura's view. The broker rates the stock a 'buy' and has a price target of 230p.Support services group Serco surprised the market with better than expected results on Wednesday morning, prompting Charles Stanley to reiterate its recommendation to stock up on the shares.'The announcement should be well received for a number of reasons. Firstly, the group has surprised with a much stronger free cash flow [FCF] number than expected (FCF was +54%). Secondly, the earnings quality has improved with no 'one-off' items. Thirdly, Serco has delivered good EPS [earnings per share] growth (+37.7%) and the outlook statement is very positive,' the broker said.Charles Stanley notes that the shares have underperformed over the last six months as investors have focused on recovery plays, but reckons the shares are about to enjoy their spell in the sun. The broker foresees appetite for risk declining over the coming months as the rate of economic recovery fails to keep pace with rebounding equity markets. Under such a scenario, the market should turn to defensive stocks such as Serco, Charles Stanley believes.Charles Stanley has increased its price target from 460p to 480p and reitered its 'accumulate' recommendation.