Broker tips: Reckitt, SuperGroup, HomeServe

8th Feb 2012 11:50

Cillit Bang maker Reckitt Benckiser reported better-than-expected headline earnings per share (EPS) and good top-line growth momentum in its full-year results today, according to Nomura which reiterated its buy recommendation on the consumer products giant."The company is guiding for 3-4% organic sales growth for the base business in 2012 and flat operating margin, despite higher investments," Nomura notes. Nevertheless, the broker is forecasting 4.3% organic sales growth a 50 basis point margin expansion for the base business (ahead of consensus) and 1% increase in net income at constant exchange rates.Nomura says that, on its estimates, Reckitt's stock is trading at 13.8 times 2012 earnings, compared with sector rivals Procter & Gamble and Colgate which trade on an average price-to-earnings multiple of 15.6 (on consensus numbers). Nomura maintained its positive view and 3,900p target price.SuperGroup's shares tanked on Wednesday morning after the firm said that full-year profits would come in at the lower end of expectations. A downgrade from Merchant Securities hasn't done much to help either.Merchant has cut its recommendation for the trendy clothes retailer from hold to sell following the recent rally in the share price. "The stock is overvalued trading on 15 times 2012 earnings," notes Merchant analyst Amisha Chohan.Chohan warns that if consumer sentiment remains subdued, "there is scope for the market to downgrade 2013 estimates from profit before tax of £64m".Peel Hunt has maintained its sell rating and 220p target price on emergency repair services firm HomeServe, saying it expects to make further cuts to 2013 forecasts."Nearly all the guidance given by the company before Christmas has been revised lower in this morning's IMS and, ahead of the conference call, we anticipate downgrading our FY2013E PBT [profit before tax] forecasts by c8%," said analyst Henry Carver.Peel Hunt says that with the shares trading at 10.7 times 2013 earnings ("pre-downgrades"), a premium to the Hoare Govett Support Services Index which trades at 9.4 times, it has no choice but to keep its sell recommendation."We do not believe the rating reflects the fundamentally lower margins and lower growth prospects for HomeServe, now that regulatory concerns are more acute, and that sales methods need to be tempered," Carver said.BC