Broker tips: M&S, Experian, Schroders

8th Apr 2016 13:52

(ShareCast News) - Marks & Spencer was upgraded to 'buy' from 'speculative buy' by Canaccord Genuity on Friday after the retailer reported its fourth quarter results.Canaccord also raised its target price on M&S to 475p from 460p, saying there was potential for a new strategic focus under new chief executive Steve Rowe to drive higher shareholder returns.M&S on Thursday reported a 1.9% increase in group sales as an increase in food sales offset another decline in the struggling general merchandise division.Food sales were up 4.0% in total but disappointingly flat on a like-for-like (LFL) basis, short of a consensus forecast of 0.5%.Clothing and home sales, known as general merchandise (GM), were down 1.9% in total and 2.7% on a LFL basis. The consensus for LFL sales was a 3.5% decline.Rowe vowed to revive the clothing business, admitting "this performance was not good enough"."Although the sales decline in Clothing and Home was lower than last quarter, our performance remains unsatisfactory and there is still more we need to do."Rowe, former M&S executive director of general merchandise, took over from Marc Bolland on Saturday and said he would continue to oversee the clothing division."This category has long been a drag on profit performance and sentiment, and will be addressed through a number of measures, some of which are already yielding some early signs of encouragement," said Canaccord analyst David Jeary."These include, but are not limited to, better prices, better fit, better availability and better customer choice (by reducing line proliferation). None of these are - or should be - earth-shattering revelations, but rather they are - or should be - core competencies for any clothing retailer."Canaccord left its forecasts unchanged and said it will review them again after Rowe's strategic plan is presented in May.It has estimated full year 2016 adjusted earnings before interest tax, depreciation and amortisation of £1.33bn, up slightly from the previous year's £1.31bn. Sales are expected to come in at £10.38bn, compared to £10.31bn in 2015. HSBC downgraded Experian to 'reduce' from 'buy' and cut the price target to 1,140p from 1,290p.It noted that Brazil's leading banks are working to create a Positive credit bureau, a move that creates significant medium-term uncertainty and will impair market expectations of longer-term growth."Brazil's largest commercial banks namely Banco do Brasil, Caixa Economica Federal, Itau, Unibanco, Bradesco and Banco Santander are working to set up a Positive credit bureau that will compete with Experian. These players will have a stake in the bureau," HSBC said.It pointed out that several of these banks historically owned Serasa and eventually sold it to Experian.In 2012, Experian paid $1.5bn for the remaining 29.9% stake of Serasa to the banks."We think this was a move by the banks to protect their market shares, avoid a potential increase in customer churn, and as a result keep the spreads in a fairly consolidated banking market such as Brazil."HSBC said Experian was likely to argue that building up such a database will take time and in the near term, the move may not impact earnings."Further, at the time of the deal in 2012, Experian had signed both Positive and Negative data supply deals with the banks. The question becomes if the business is sustainable in the longer term? After all, the banks represent key data suppliers as well as customers for Experian in Brazil."The bank said this market development poses a multiple de-rating threat. .HSBC had previously argued Experian shares could re-rate to 20x price-to-earnings multiple as the company delivered on management's strategy of capital discipline and a more defensive earnings profile than expected."However, given that the market is likely to adjust its longer term growth assumptions, we reduce our target multiple to 17x (CY 2016e, last 5 year average)."At 1017 BST, Experian shares were down 1.8% to 1,233p. Exane BNP Paribas downgraded Schroders to 'neutral' from 'outperform' and cut the price target 10% to 2,700p as it took a look at asset managers.While it remains positive on the long-term investment case for Schroders, Exane said its weak flow and fund performance momentum, lack of near term operating leverage and the lower likelihood of a change in capital return policy have led it to downgrade.Exane said its long-term positive stance was based on diversity across asset classes, clients and geographies; Schroders' exposure to multi-asset and wealth management and a strong pipeline of new funds/seeding."Nonetheless we see Schroders' diversity posing some short-term challenges, in particular for the £72bn of AUM coming from Asia-Pacific clients (split roughly equally between intermediary and institutional, though this includes AUM from Japan and Australia), given the market backdrop."The French bank noted the region accounted for around 75% of group net flows in the first half of 2015."Schroders' relative fund performance has deteriorated over the past six months, leading us to see the risk/reward on the stock as balanced."At 1008 BST, Schroders shares were down 1% to 2,498p.