Broker tips: Wm Morrison, pub groups, Next
09/05/2008
JP Morgan has reiterated its 'overweight' rating on Wm Morrison and raised its price target by 20p to 340p, saying that the market is underestimating the supermarket operator's potential.
"It is perplexing: everyone can see from the data that Morrison has more operational momentum than peers and yet it is de-rated on a relative basis and currently trades at a c15% discount to Tesco," the broker said.
JPM estimates that a trading update on June 5 will show like-for-like growth of around 7% in the 16 weeks to May 20. It added that the supermarket may benefit from more cautious consumer spending.
"In terms of customer perception Morrison and Asda are, we think, seen as the most price competitive formats of the majors," it said.
"Evidence that consumers are trading down today is not conclusive, but it might prove a positive theme for Morrison going forward."
Morrison may also benefit from a high proportion of its sales coming from food, JPM said.
"Only around 5% of Morrison's sales is discretionary non-food: not only do Tesco and Sainsbury have higher exposure currently, but non-food growth remains a cornerstone of their stories," the broker observed.
JP Morgan has raised its ratings on pub groups Greene King and Marstons and downgraded JD Wetherspoon in a reassessment of the pub sector that notes recent REIT developments but envisages continued weak fundamentals.
It upgrades brewer and tenanted pub operator Greene King to 'overweight' from 'neutral' and Pitcher and Piano owner Marstons to 'neutral' from 'underweight'. It has a 700p price target on Greene King and a 250p price target on Marstons.
Pub leaser Punch Taverns sees its target rise to 900p from 700p after its peer Enterprise Inns said it can now qualify for 'Real Estate Investment Trust' (REIT) status, which offers tax advantages. Punch is also likely to qualify for this, JPM said.
However, the broker remains cautious on pub groups despite the excitement over REIT developments. The effects of the smoking ban and cost pressures are likely to be prolonged, it said.
It downgrades budget pub group JD Wetherspoon and Restaurant Group, which owns the Frankie and Benny's chain, to 'neutral' from 'overweight'.
SG Securities has lifted its recommendation on Next to 'hold' from 'sell' and raised its target price to 1,317p from 910p, following the fashion group's trading update yesterday.
The update was weak, but this had been expected and, even though Next remains challenged, news in coming months is likely to be better the broker said.
| MRW - Morrison (Wm) Supermarkets |
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