Broker tips: Ted Baker, Game Digital, Stagecoach

23rd Dec 2015 13:49

(ShareCast News) - Ted Baker has had its rating cut by Jefferies to 'hold' from 'buy' as mild winter weather, discounting in the US and a slowdown in Asia is expected to slow sales at the luxury fashion retailer.Jefferies has lowered its annual pre-tax profit forecast on the company to £58.6m, in line with consensus, saying the shares look set to "pause for a breather" after rising 39% this year.The broker also warned that Christmas trading could be disappointing at Ted Baker.Margins are expected to feel pressure from higher-than-expected operating costs, further IT development and international expansion.Jefferies cut its target price to 3200p from 3400p Canaccord Genuity has downgraded Game Digital to 'hold' from 'buy' after the company warned first half earnings would be lower than the previous year.The specialist video games retailer said adjusted operating profit for the 26 weeks ending 23 January 2016 will be around £30m, down from £43m in the same period a year ago following disappointing sales since the start of school Christmas holidays.In an update for the 21-week period ended 19 December, it said trading conditions in the UK retail market have been challenging with total sales for the video games market down 13.5% year-on-year.Revenue, or total gross transaction value as Game calls it, of £466.8m was down 6.7%, largely due to the reduction in low margin console sales, down 20.3%."Game is just heading into its peak sales period, so this is a particularly disappointing update," Canaccord said."Given the extent of first half weakness, we downgrade full-year 2016 forecast (FY16F) for pre-tax profit/earnings per share from £38.9m/18.1p to £21.7m/10.1p, a 44% downgrade. At this stage we maintain a flat dividend at 14.7p; but there is clearly some risk of a dividend cut (despite £47m of projected FY16F year end net cash), given that it is uncovered by projected earnings in FY16F and FY17F."The broker lowered its target price to 183p from 270p. RBC Capital Markets cut its price target on Stagecoach to 315p from 355p.Overall, it reckons Stagecoach shares have one of the strongest historical earnings delivery track records of the bus/rail segment peer group."However, although we think Stagecoach has solid aspects, in the next 12 months the risk/ reward outlook (25-30p upside and downside chances) are presently accommodated in the share price where we see 2% 2015-2021E EPS compound annual growth rate, around 4% dividend per share yield and growing free cash flow yield prospects," it said.For investors prepared to look beyond present earnings per share momentum, it sees total return upside of more than 330p on fundamentals even if UK Bus makes no profit progress, Megabus Europe fails and no new rail contracts are won.Longer term, RBC said bus profit stability leading to recovery could see the shares double by 2018 without new rail contracts.The bank cut its 2015/16 EPS estimate by 4.6% to 27p and its 2016/17 forecast by 2.5% to 26.6p.