Broker tips: Ryanair, ICAP, Compass

30th Sep 2010 12:56

Attention-seeking no-frills airline Ryanair held an investor day on Wednesday which mainly focused on the company's business model and medium-term strategy, Commerzbank revealed. "Management reiterated its intention to slow down growth until 2013," Commerzbank analyst Johannes Braun said. "Full-year guidance for 2010/11 is maintained. However, with current trading developing well, guidance risks are clearly skewed to the upside," Braun suggested.That's a view that is mirrored by Panmure Gordon. It thinks the company may have been playing its cards close to its chest by maintaining the full year profit guidance for the current year at €350 - 375m. "If it had chosen to change its guidance at this point in time, we believe the profit range would have moved up rather than down," the broker speculated.The company intends to stick pretty much to its current low-cost business model, despite its intention to increase its presence at bigger airports and, in the words of Braun, "focus on its service proposition.""While we believe slowing growth and the resulting yield optimisation as well as dividend payout potential are positive, it remains to be seen how unit costs performance will develop in a slower growth environment and the shift of focus to its service proposition will play out. While the share's valuation is relatively demanding, due to ongoing positive traffic and profit momentum we stay with our Add rating," the broker said. Panmure Gordon is more positive and is sticking with its "buy" recommendation and €5 target price."Our stance remains positive as the outlook remains very attractive in terms of average fare increases, cost control and strong cash generation," the broker said. Charles Stanley has reiterated its recommendation to buy shares in Compass Group after the catering giant released what the broker described as a 'pleasing trading statement'.'A key point in today's announcement is the improvement in organic revenue growth. This has showed a good recovery from the recession which caused organic revenue to stall in 2009 but this year it is expected to advance by 3% and the current run rate is about 5% which sets the group up for a good year in 2011," said Charles Stanley analyst Tony Shepard.The broker is forecasting a pre-tax profit for 2010 of £900m and EPS of 35p, putting it a tad below market consensus of £905.7m and 35.34p, but it still represents healthy earnings growth of 16.7% over 2009."In 2011, this rate of growth should continue and we estimate the shares trade on a forward P/E [price/earnings ratio] of 15.7x for 2010 and 13.7x for 2011. The dividend yield is about 2.8%. The Compass Group share price has outperformed the general market by about 30% over the last 12 months and our recommendation on Compass Group remains a Buy," the broker concluded.Inter-dealer broker ICAP was the weakest blue-chip performer on Thursday morning after it said earnings would be hit by debt refinancing costs but the shares are still worth holding on to, in the view of Panmure Gordon.ICAP's second quarter interim management statement was broadly in line with expectations and "reads positively," Panmure Gordon analyst Vivek Raja said."Revenues in the six months to 30 September are +9%, better than the +7% we were looking for. The run rate looks to have picked up between quarter one (+8%) and quarter two (+9 to +10%)," Raja noted.Ahead of this morning's conference call with analysts the broker was not expecting to make any changes to its full year earnings estimates and said there was not enough in the statement to persuade it to "turn positive on ICAP at this stage."The broker has a 480p price target for the stock.