Broker tips: Next, French Connection, Horizonte

15th Sep 2010 13:35

The market has reacted favourably to the trading update from Next but KBC Peel Hunt sees no rush to buy more of the shares if you already hold them."Once again, Next has delivered double-digit profit growth from margin and overhead control, benefiting from a strong sales gain at Directory. While the outlook remains challenging, a point the statement covers to exhaustion, shareholder returns remain attractive," states analyst John Stevenson.Profit before tax at the interim stage was up 15% year on year to £213m, but fell short of KBC Peel Hunt's forecast of £218m. Against a "turgid and depressed" backdrop for retailers Next's management sees scope to deliver profit before tax growth of between 6% and 12% in 2011 and medium term shareholder returns of 9-15%, making the shares an attractive proposition."However, with short term uncertainty likely to drive the sector backwards ahead of Christmas, as industry reported sales backtrack, we see the shares treading water over the coming 3-4 months and see no reason to chase the shares for now," Stevenson concludes.Elsewhere on the high street, FinnCap thinks French Connection has a shot at returning to profitability this year after better than expected interim results. The loss before tax of £0.2m was far better than the loss of £2.1m FinnCap had been expecting, though the broker notes that "all manner of exceptional closure costs and losses on discontinued activities" take the figure up to a loss of £12.7m. Even so, the broker thinks the platform for the second half and beyond is stronger than previously expected.The cash position was also better than expected, with the company sitting on a pile of around £30m, versus FinnCap's prediction of £20m. "The case for French Connection is that it has the balance sheet strength to ride out the challenging consumer environments in the UK and US," FinnCap analyst David Stoddart said, justifying his "buy" rating and 60p price target.The broker has not run the interim numbers through the spreadsheet model but expects to increase its profit before tax forecast for fiscal 2011 to around £4m, up from its current prediction of £2.9m.Brazil-focused exploration company Horizonte's acquisition of the potentially world-class Araguaia nickel project through the purchase of Teck Cominco Brasil SA is a transformational transaction, the company's house broker Westhouse Securities claims.The project has been consolidated with Horizonte's adjacent Lontra nickel discovery in the Carajás mining district of Brazil. The district is well supported by infrastructure, the broker notes, and is in the same region as several other world-class nickel projects owned by big players such as Vale and Xstrata .Though it does not yet have a JORC (Joint Ore Reserves Committee) estimate, the Lontra-Araguaia project has more than 555 drill holes across the project, and demonstrates resource potential of 100 megatons (Mt) at 1.3% nickel plus cobalt and is comparable in size to projects currently being developed by major diversified miners in the region, mining analyst Mark Heyhoe asserts.The broker thinks the region is ripe for more consolidation and that the Lontra-Araguaia project will be a "compelling target for the majors already operating in the area once a resource has been defined and the project moves to the development phase."Westhouse is maintaining its "buy" recommendation on the stock but is bumping up its price target from 14p to 18.5p per share."We see significant price drivers over the next year as exploration drilling ramps up and a maiden resource statement is announced. Given that the greatest value added in a mineral development is in the period running up to the announcement of a positive feasibility study, we expect to see substantial share price appreciation in the forthcoming quarters," Heyhoe said.