Broker tips: Man Group, Restaurant Group, TalkTalk

28th Nov 2016 12:38

(ShareCast News) - Man Group slumped as Exane BNP Paribas downgraded the stock to 'neutral' from 'outperform'."We see scope for a slowdown in flows as a consequence of flagging performance at AHL and at GLG. Performance issues are also likely to impact the long term outlook for management fee margins."The bank said the continued sluggish fund performance, impacting the outlook for performance fees and fund flows, prompts material downgrades to its earnings expectations, adding that the amount of surplus capital for materially accretive deals is limited.Exane cut its earnings per share estimates for FY16 by 15% and for FY17 by 27% as it pointed to lower performance fees, negative performance contribution in the fourth quarter, softer Q4 flow expectations and the stronger US dollar."We estimate that AHL Diversified is down -8.1% year-to-date, AHL Alpha -3.5% YTD and AHL Dimension - 3.9% YTD."While the relative performance (second quartile) is still decent, this is a bleaker picture than at the half-year results when the same funds were up +5.4%, +0.6% and +0.1% respectively."Exane highlighted Man Group's acquisition of Aalto Invest and said that while it is a good, well-structured deal, there is limited near-term earnings contribution.Exane has a 120p price target on the stock.HSBC initiated coverage of Restaurant Group at 'reduce' with a 290p price target, saying there is a gap between the current share price and the likely pace of recovery at the company.The bank pointed out that Restaurant Group was one of the UK's most successful restaurant operators for almost a decade, but recent issues caused by pushing hard on prices, inconsistent service levels and a confused proposition have resulted in a series of profit warnings."Now, with a new management team in place, a recovery plan is taking shape, although the path is likely to be bumpy given that the restaurant operator has experienced a breadth of issues, along with near term cost and competitive headwinds also working against them."Given management's recovery plan, we expect the decline in like-for-like sales to ease over the next two years, though turning around the leisure estate will not be easy to do."The bank - whose forecasts are 20% lower than consensus - expects full-year 2017 pre-tax profit to struggle to match 2016 due to food price inflation, the national living wage, a weaker pound and rising competition.HSBC expects LFL sales to remain negative until 2018, recovering thereafter."Several industry experts and consultants are even more cautious on the timeline to recovery as the competition command greater brand presence which could eat into Restaurant Group's lunch," it said.TalkTalk was under pressure as Citigroup cut its price target on the stock to 150p from 230p and kept the stock at 'neutral' saying it was still too risky.The bank said the fall in the target price was due to cutting cash flow forecasts given lower earnings before interest, taxes, depreciation and amortisation and higher capex, and as it takes into account higher net debt coming into the forecast period.Citi said TalkTalk's first-half results showed net debt continuing to rise rapidly while revenue fell and shifted further into wholesale, undermining gross margin.It pointed out that the group was forced to add a £75m receivables purchase agreement to improve its facilities headroom but noted the majority of its credit arrangements expire within three years."A lot now rests on its October consumer relaunch of more competitive plans for new customers alongside a chunky price rise for the base. We expect the dividend to halve year-on-year in FY18 and see downside risk to consensus."Citi expects £302m for FY17 EBITDA, below revised guidance at the lower end of a £320m-£360m range.