Broker tips: Morrisons, Reckitt, Ryanair

2nd Feb 2010 13:11

Morrisons has come a long way since it bought rival supermarket Safeway, said the broker JP Morgan as it lifted its rating on the stock to 'overweight' from 'neutral', upping the target price to 340p from 320p.It is now three times the size and its food sales density, a measure of how much is sold per square foot, is now just 10% short of sector leader Tesco's, compared with 25% before the Safeway purchase.Morrisons took over Safeway in 2004.Margins are still low at Morrisons in comparison with its own historical standards and those of Tesco, JPM notes, adding that it expects these to improve.It notes that Morrisons trades at discount to Tesco and Sainsbury's due to concerns over the chief executive, which it thinks are overblown.Morrisons lost its highly-rated chief executive Marc Bolland to Marks & Spencer last year and has replaced him with Dalton Philips, who has worked with the Canadian retail giant Loblaw and the US's Wal-Mart.Credit Suisse has cooled on the appeal of Anglo-Dutch company Reckitt Benckiser, reckoning that the next few months will be challenging for household good makers.Credit Suisse (CS) thinks that it is only matter of time before Reckitt's treatment for opiate addiction, Suboxone, faces competition from a generic version. 'We think there will be a number of generic Subutex launches and with prices likely to collapse there will be switching from Suboxone to Subutex. Subutex has already lost 60% of its business to the single generic launch inside 3 months,' CS notes.The bank has downgraded the stock from 'outperform' to 'neutral'. 'For the moment the more discretionary HPC [household products] sector looks the most expensive consumer staples group to us. Though Reckitt may be the best value in this sub-sector, a Neutral rating looks more appropriate for now,' CS concludes.The bank has a price target of £33.50 for Reckitt.Third quarter results from Ryanair were better than Citigroup had been expecting, and the US bank thinks the Irish no-frills airline may beat full year expectations, even after the airline raised expectations at the nine-months stage.'The company raised its full year to March 2010 net income guidance from "low €200ms" to €275m. This is only slightly better than our forecast of €265m and consensus of €251m,' Citi analyst Andrew Light notes. 'Given the very easy comparison on a year ago, where average ticket price declined by 23.5%, we think Ryanair can beat this guidance, as it has done in the December quarter,' Light added.The broker has maintained its one month medium risk 'buy' rating and 12-month target price of €4.60 in anticipation of Ryanair shaking off its recent share price lethargy and moving back into outperformance mode.'Its share price has risen by only 6% over the last year, compared with +21% for easyJet and +48% sector average,' Citi notes. On a discounted cash flow basis, the broker values the shares at €6.20 each.Royal Bank of Scotland (RBS), in contrast, rates the shares as no more than a 'hold', and recommends taking profits on any sign of share price strength. It appears to be using a different discounted cash flow model to Citi, valuing the shares at €3.50 each using its earnings estimates. RBS's underlying net earnings estimate for fiscal 2010 is €328m, down from its previous estimate of €337m but still well above company guidance.Deutsche Bank also has a 'hold' recommendation on the shares, with a price target of €3.40.