Broker tips: Morrisons, Next, Fuller's

21st Jul 2009 12:59

Supermarket chain Wm. Morrison has sent members of the investment analyst community scurrying to upgrade their full-year profit forecasts after releasing an upbeat trading statement.Merrill Lynch is a buyer of the shares and is predicting pre-tax profit of £750m for the year to 31 January, 2010. Prior to Tuesday morning's trading update, market consensus was for pre-tax profit of £665m.Cazenove, meanwhile, has ramped up its profit forecast by a tenth to £729m, and said that the trading update allays fears that the supermarket chain's growth rate was beginning to flag.Charles Stanley expects to lift its forecasts by 10% too, which in its case would put its prediction on £740m."The group also has the strongest balance sheet in the sector (gearing c14%) and the highest proportion of freehold property (92%)," Charles Stanley analyst Sam Hart notes. "The recommendation remains Accumulate ahead of interim results on 10th September," the broker said.Fashion retailer Next rushed out its interim management statement Tuesday morning to spread the good news about better than expected trading."The warmer weather drove sales of summer clothing, and management estimate that the weather boost was between 2% and 3%. Management were also much happier with the design and fashion content of the current season," noted Singer Capital Markets, which is a buyer of the stock.Despite management lifting full-year profit guidance by around £30m, the shares fell back after the trading statement."In the outlook statement, management expect the consumer environment in the second half to be similar to the first. However, they state that given the favourable weather conditions in the first half, LFLs [like for like sales improvements] in H2 [second half] are unlikely to be inline with H1, and at this stage they estimate H2 LFLs in the range of -3.5% to -6.5%," the broker notes.Singer continues to prefer Next to Marks & Spencer and has a price target of 1800p. Broker Charles Stanley has developed a taste for Fuller's the real ale brewer and pub group, but that has more to do with recent share price weakness than Tuesday's trading update.The broker has retained its price target at 575p but given the shares were trading almost a pound below that level before Tuesday's "robust trading statement" it believes the shares are worth buying at the current level."The group's management has confirmed that it will deliver results at least in line with expectations for FY10, a confident assertion given that only Q1 has been completed," the broker's analyst James Dawson suggests.