Broker tips: Michael Page, International Power, Travis Perkins

8th Mar 2011 12:58

The current share price of recruitment firm Michael Page International (MPI) does not reflect the earnings growth or cash generative potential of the business, according to Credit Suisse.The full year results were in line with the broker's expectations and nothing much had changed since the group's trading update in January. Credit Suisse keeps its 2011 and 2012 earnings per share estimates the same."Michael Page has a consistent strategy of expanding its network (by geography and by discipline) organically to take advantage of opportunities in structurally growing professional recruitment markets," says analyst Andy Grobler."While the UK market remains the most challenging, its impact at a group level has been mitigated by growth elsewhere and it now represents just 28% of group gross profit."Credit Suisse maintains its 'outperform' rating and 610p target price.RBS believes that investor concerns about cost inflation at Travis Perkins (TP) are overdone and maintains its positive stance on the stock.The builders' merchant and owner of the Wickes chain of DIY stores issued a 2011 overhead inflation guidance of £60m. "In our view, TP's guidance reflects inflation realities and continuing investment," said RBS.RBS leaves its 2011 and 2012 forecasts essentially unchanged, as it expects the group to continue to outperform the wider UK merchanting industry. "Whilst we assume this rate of outperformance eases and we continue to forecast a decline in retail profitability in 2011, TP still, in our view, offers fundamental attractions short and longer term."The target price is raised to 1,300p, from 1,295p, and a 'buy' rating is kept.Shareholders in International Power (IPR) who are concerned about the recent share price weakness should keep the faith, Nomura Securities reckons, and take heart from the secure growth the group can offer.In its 2010 results, IPR provided pro forma historical earnings for the enlarged (post-Suez Energy merger) group and reiterated the expected earnings before interest, tax, depreciation and amortisation (EBITDA) growth of £800m by 2013.The broker notes that the market was disappointed that bottom line guidance was not provided "given the complications of group structure when forecasting earnings per share (EPS)". "However with a strengthening balance sheet and contributions from associates feeding into EPS, we see bottom line growth at double the compound annual growth rate (CAGR) in EBITDA; we forecast a three-year EBITDA CAGR of 7%, and 13% at the EPS level," says analyst John Musk.The broker's forecast growth is based purely on projects currently in development, most of them in Latin America. "We include little in the way of merchant recovery in the UK or US, and we don't include the 8GW [8 gigawatts] net of further projects within the bidding phase," Musk explained.Some may be concerned that project returns are being squeezed by competition and that this may threaten development of the project pipeline, but Nomura argues that the strong free cash flow of the group offers a "safety net". "If management exercise financial discipline on potential new projects and decide returns are not sufficient, cash will likely soon build up within IPR, and the parent (GDF Suez) will be forced to decide on the best way of utilising this; a buyout of minorities in 2013 could be envisaged if no further growth is forthcoming," the broker predicts.The Japanese broker keeps the target price at 410p and reiterates its 'buy' rating, saying that "despite sector-leading growth" International Power is trading on a discount to its peers based on projected earnings per share for 2013.