Broker tips: Whitbread, National Grid, BBA Aviation

7th Mar 2011 12:31

Nomura trims earnings estimates at Whitbread due to increased costs, but revenue assumptions are unchanged and the broker keeps its 'buy rating.Fourth quarter revenue for the hotel, coffee shops and pubs group was in line with expectations and full year turnover is likely to show a like-for-life (LfL) growth of 7% to £1.6bn, according to the Japanese broker."However, revenue flow-through to earnings before interest and tax (EBIT) in the second half is likely to be lower than our previous assumption owing to higher input costs," says analyst Simon Larkin.While the Coffee Nation acquisition adds around £4m to 2012 EBIT, the broker reduces group 2011 EBIT forecasts by 3% to £315m, from £324m, and by 1-2% beyond.In spite of EBIT reductions, the exit LfL revenue run rate from the fourth quarter is line with Nomura's assumptions for 2012. The target price is lowered to 2,175p, from 2,180p.In spite of RBS raising earnings forecasts for power and gas grid operator National Grid, the broker continues to worry about the path of UK regulation and awaits an Ofgem announcement later this month."Favourable weather in the past year - a cold winter and warm summer - has boosted demand for gas and electricity, meaning National Grid has been able to recover £200m of cumulative under-recovery via its regulated tariffs," according to analyst Iain Turner.RBS now forecasts 2011 earnings per share (EPS) of 49.5p, up from 46.6p, "thanks to the recovery of the under-recovery". 2012 EPS estimates are raised to 48p, from 45p.However, the broker is cautious about Ofgem's announcement on their evolving thinking on the 'RIIO' (performance based model) UK price controls that affect 60% of National Grid's profitability. Poor operational performance could result in a fine being imposed by the regulator.RBS maintains the 500p target price and 'sell' rating.UBS upgrades aviation services provider BBA Aviation after a strong 2010 and a share placing which signals a return to expansionary activity.While 2010 saw market volumes in business jet activity increase 10%, the broker expects growth to slow due to tougher comparatives, but still predicts BBA's organic growth to accelerate to 6% as its Aftermarket division benefits from a full year of positive growth.Following the legacy fuel systems acquisition announced last week, the £86m share placing should leave around £36m of excess funds to finance their acquisition pipeline, a further catalyst for the stock, according to UBS.Due to the 4% earnings dilution of the share placing, the broker lowers earnings per share estimates and, in turn, its target price, from 240p to 230p. However, "with the shares having fallen due to the share placing we view this as a buying opportunity and upgrade out rating to 'buy' [from 'neutral']."