Broker tips: Persimmon, Debenhams, Autonomy

10th Jan 2011 13:29

After a great trading update by housebuilder Persimmon, Panmure Gordon ups its 2010 forecasts, while leaving 2011 estimates where they are, as the short-term market outlook remains uncertain.The group reported a robust update with pre-tax profits expected to be at the top of the £75m-96m range. The broker raises profit forecasts from £80.3m to £95m as a result.With sales, pricing and margins being broadly in line with broker expectations, Panmure said that Persimmon's area of outperformance is the debt, with the group ending the year with £51m of debt compared to the £78m it forecast.Though the housing market does not show any signs of improving over the next 12 months, the broker says that the housebuilder's numbers appear to have remained broadly stable, and rates the group a 'buy', with a target price of 487p.Despite Debenhams' sales being a touch lower than finnCap estimated, the group's gross margins beat expectations, leaving the broker's forecasts for the year unchanged.The department store chain reported a gross transaction value for the 19 weeks to 8 January increased by 4.2%, while like-for-like (LFL) sales were up by 0.3% including VAT, though they fell 1.3% excluding tax. "We have assumed a LFL sales decline of 1% for the first half," says analyst David Stoddart.However, the broker admits to an overly pessimistic view in regards to margins, as the group's gross margin for the period was ahead of last year.Additionally, "Debenhams' return to the dividend list at the forthcoming interims, even on a conservative payout ratio, offers an attractive yield by retail standards," adds Stoddart.FinnCap says that the retailer is still worth a 'buy' and keeps its target price of 100p.Panmure Gordon remains in the bear camp, however, and says the department stores group's sales were weaker than it had anticipated. The broker thinks the update may prompt some shareholders to bank recent gains."Gross margin for the period has increased - the statement does not say by how much - which should offset some of the top line disappointment," concedes analyst Jean Roche. "Market share has also begun to recover in the all important (as it drives footfall to other divisions) womenswear division," Roche adds.The broker is sticking with its "sell" recommendation, putting it out of step with most other brokers. "We are inclined to stay away from the shares due to the company's relatively constrained balance sheet, reflected in a high adjusted net debt/EBITDAR [earnings before interest, tax, depreciation, amortisation and rent] ratio, and because of its higher relative exposure to public sector pay freezes and job cuts."The broker has a target price of 60p for the stock. Due to a dramatic slowdown in growth, Autonomy has been downgraded by Peel Hunt as the broker suggests just a 50% chance of the Cambridge-based firm hitting the sales target for 2010.The corporate software giant could miss its new sales guidance of $870m, introduced by the group in an update in October, and if this happens the shares are likely to fall from current levels. The broker ascribes just a 10% chance of an upside surprise to the sales guidance.Peel Hunt highlights the deceleration in growth of Autonomy's core 'Intelligent Data Operating Layer ' (IDOL) business, which stood at 20% in 2009, but which slowed to below 15% in the first half of 2010 and fell to just 5% in the third quarter."Even more concerning for investors is that these figures include an Original Equipment Manufacturers business growing at between 30% and 40%," says analyst Paul Morland.With the market expected to react negatively to the group's fourth quarter results next month, Peel Hunt takes its rating down a notch from 'hold' to 'sell', and cuts its target price from 1,500p to 1,400p.