Broker tips: Persimmon, Cranswick, Majestic Wine

15th Nov 2010 12:54

KBC Peel Hunt, a persistent bear on housebuilders, notes that Persimmon's trading update has a "positive tone but weaker undertow", reflecting over-valued shares in a struggling housebuilding sector.The group saw unit sales since July total around 9,400, under the broker's figure of 9,700. KBC forecasts a full year earnings before interest and tax margin of 7.6% but the "statement points to 8%, most likely from a 'very strong forward sold position carried over from the first half"."Persimmon's guidance for year end debt stands at £80m, higher than the broker's estimate of £64m. Nevertheless, analyst Robin Hardy reckons that "higher debt is preferable here as it means more money is being spent on land and that makes the potential improvement in margins more visible"."However, we still do not believe that Persimmon is spending enough on growth capital and that the focus on debt reduction is the wrong path" says Hardy. Hardy notes that sector peers Bovis, Bellway, Galliford Try and Barratt have been high net investors in land, making recovery in their margins much more visible."We really need to hear from Persimmon that investment in growth is going to pick up," Hardy believes.Persimmon has rallied 14% from the recent low of 333p to a high of 375p, but the broker warns that the 'spike' may now be over, as the shares are "still too expensive".The broker has a target price of 299p and retains its 'sell' recommendation. Panmure Gordon has come off the fence with pork specialist Cranswick after the company reported strong cash generation in the first half and advocated buying the shares."There were strong performances across all divisions with Fresh pork revenues +27%, Sausage revenues +8%, Bacon sales up an impressive 24% (with volumes up 28%) and Sandwiches up 19%", the broker said.Cranswick expects full year net debt to be around £20m lower at £41.5m, which surprised the broker, which had forecast net debt of £52m. With some additional capital expenditure in the second half, Panmure expects a normal working capital outflow in the third quarter, but reduces its full year net debt forecast to £41m."Our other forecasts remain unchanged with adjusted profit before tax to increase 9% to £47.7m, equating to earnings per share growth of 5.2% to 73.4p", said the broker.Panmure upgraded the target price from 880p to 900p, which, if achieved, would put the company on a price earnings ratio of 11.4. The rating is upgraded from a 'hold' to a 'buy'.Broker finnCap sees encouraging signs that Majestic Wine's store opening programme will exceed expectations and retains its 'buy' rating.Majestic, the UK's largest wine warehouse chain, reported a pre-tax profit of £7.3m for the half ended September, £0.5m higher than broker expectations. "The underlying performance was even stronger than this suggests", says analyst David Stoddart.Stoddart thinks the main factor to highlight is the £2.2m profit that the group's fine wine specialist, Lay & Wheeler, earned on 'en primeur' (or 'wine futures')."We have argued that one of the attractions of rollout stories at this point in the cycle is their ability to source new property at attractive rates", Stoddart added. Despite opening only two stores in the first half, the group has already opened six in the second and is on target to open 12 this year and the next.Second half like-for-like sales so far are 7.4% higher than last year. The broker expects the group to have eliminated its net debt by the year-end despite capital expenditure on new store openings."The remaining growth potential in this proven rollout story merits a retained 'buy' rating" says Stoddart. A target price of 430p is confirmed.