Broker tips: Whitbread, Paddy Power Betfair, TUI

26th Apr 2016 15:25

(ShareCast News) - Numis reiterated a 'hold' rating and target price of 4,000p for Whitbread on Tuesday, saying it expects "lack-lustre" earnings growth in the near term.The owner of Costa and Premier Inn reported its full year results on Tuesday, revealing a 12% increase in total revenue to £2.91bn and an 11.9% gain in underlying profit before tax to £546.3m. Numis had forecast pre-tax profit of £548.7m.The company's Premier Inn brand saw total sales growth of 12.9% and like-for-like growth of 4.2%, while coffee chain Costa saw total sales improve 15.9% and UK like-for-likes grow 2.9%. The dividend was raised by 10% to 90.35p.Chief executive Alison Brittain said Whitbread was planning to develop its network and brand strength amid rising competition, rapid technological advancements, changing cost structures and growing customer expectations.Whitbread repeated its target to reach around 85,000 UK hotel rooms and £2.5bn system sales in Costa by 2020."Management acknowledges the need to invest across both brands in a number of common areas: teams, IT infrastructure, digital and productivity and efficiency," said Numis analyst Wyn Ellis."We believe that this, in combination with a more competitive market environment, will result in relatively lack-lustre earnings growth in the near term."Numis kept its forecasts for full year 2017 pre-tax profit growth of 5.5% growth.Whitbread said it has had a good start to the year with Premier Inn growing share in a flat market and is confident looking ahead.Ellis concluded: "High enough for now, in our view: the 'refreshed' management team needs to prove itself in a changing world." Paddy Power Betfair got a boost on Tuesday as Morgan Stanley lifted its stance on the shares to 'overweight' from 'equalweight', saying the stock's drop of over 20% in the last two months made for a compelling entry point."We are not changing forecasts, but see upside risks given signs of accelerating cost cutting and strong industry growth," the bank said.MS said there four new developments other than valuation giving it confidence in the growth profile.It said the company seems to be on track to exceed its £50m synergy target, with delivery quicker than its three-year target.In addition, it highlighted strong industry growth rates. The bank said peer William Hill's surprise profit warning was related to changes in regulations for player activity and anti-money laundering."This heightened market concerns of a slowdown in growth in the key UK online gambling market. Subsequent upbeat reports from Ladbrokes, GVCand Skybet suggest that William Hill's issues are more company specific."Morgan Stanley also pointed to Betfair's s horse-racing exchange in New Jersey, which launches on 10 May.It said this will be the first fixed-odds product for US horseracing, adding that it sees significant long-term scope for growth as more states legalise, and a long-term option on sports betting regulation.Finally, the bank said net debt of £63m as of 8tMarch leaves PPB on track to beat its year-end forecast of net cash of £42m.MS has a 10,000p price target on the stock. TUI was making the most of the bumper UK summer holiday booking season, but the same could not be said of rival Thomas Cook, JP Morgan said.A 20.2% surge in UK holiday bookings during the month of February took fiscal year-to-date growth for the sector to 9.6%, with no signs of any deceleration ahead despite the fact that companies were heading into less favourable period for currency comparables.However, only TUI, whose summer 2016 bookings were running 9% ahead appeared to be "fully capturing this opportunity", the broker said in a research note sent to clients.Analysts led by Jaafar Mestari on the other hand expected rival Thomas Cook to continue to suffer from stronger competition in the lower price points - from the likes of Dart - and less favourable hedging (at prices that were 7% higher than those for TUI).The UK represented nearly 40% of group earnings before interest and taxes for both TUI and Thomas Cook, they explained.Indeed, in th ecsae of TUI spot booings were already running sufficiently high enough for the company to reach the broker´s estimates for fiscal year 2016.However, an unexpected €36m currency headwind from the translation of UK profits led Jaafar and his team to lower their target price on the shares from 1,315p to 1,200p, even while upgrading their recommendation from 'neutral' to 'overweight'.Shares of Thomas Cook were downgraded to from 'overweight' to 'neutral' and the target price lowered from 170p to 100p."Even factoring in management expectations of a "sustained recovery in consumer confidence", we now model a flat growth scenario (vs ytd bookings flat/-5%). We think the stock unlikely to re-rate before revenue growth resumes."