Broker tips: Retailers, Pennon, Informa

24th Nov 2009 12:52

Nomura Securities has been casting an eye over the general retail sector where it reckons almost all data indicators point to an improvement.The broker has picked four stocks it likes in the sector: Marks & Spencer, KESA Electricals, Home Retail Group and HMV.Marks & Spencer is set to 'benefit from weaker comps [comparative figures], market share gains, reduced sales at markdown levels, and innovation,' Nomura analyst Christopher Walker believes.Comet stores owner KESA gets the thumbs-up on the back of a 'strong improvement in the trading environment for electricals, high operating leverage, easy comps in both LFL [like for like] and gross margin (-300bp in Q3) [3 percentage points in the third quarter], recent improvement in French electrical data, stock underperformance relative to the sector and relative discount to the sector on an EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] basis.'Argos and Homebase owner Home Retail is also set to benefit from going up against weak figures from a year ago, while HMV, which as well as operating the eponymous stores also owns bookseller Waterstones, should do well if the trend seen in October for increased book sales endures. The removal of competitors such as Woolworth and Zavvi from the High Street should enable HMV to improve market share this Christmas.Broker Charles Stanley was reassured by half year results from Pennon last week, but as is the case for all UK water companies, Thursday's Ofwat's final determination for the next five-year regulatory period 2010-15 is likely to have a bearing on its future prospects. The broker reckons Pennon remains 'relatively well placed' compared to sector peers United Utilities and Severn Trent, 'which were placed on credit watch negative following a tough draft determination (some analysts anticipate c.20% dividend cuts at SVT and UU or equity issues).'The broker is reluctant to commit too heavily to the shares ahead of Thursday's Ofwat ruling and retains its 'hold' recommendation.Initial reaction to news that Lloyds List publisher Informa is in talks to buy German publisher Springer is likely to be negative, Panmure Gordon reckons, because of the need for Informa to raise fresh capital if the bid goes ahead.The broker also notes that Informa itself has long been seen as a bid target, and so bulking up with the addition of Springer would make Informa less digestible for a potential predator.On the plus side, 'there are obvious synergy opportunities here, which is the route to any value creation,' notes Panmure analyst Alex DeGroote.