Share tips October 2016: Burberry, BT, United Utilities and more
Here’s your round-up of what the experts are tipping this week.
It’s time to let go of a fashion label and a British institution and pick up a builder and a utility firm, according to the experts.
1. Burberry – Sell
It may have been one of the biggest beneficiaries of the post-Brexit sterling slump but luxury goods firm Burberry (BRBY) has seen its shares drop following a fall in wholesale sales.
Liberum Capital has maintained its sell rating citing the firm’s inability to grow.
“Burberry is a beneficiary of weak sterling and if £/$ stays at current levels will see a £90 million benefit over 2015/16. £50 million of this is already in our forecasts,” says Liberum Capital.
“FX benefits aside, Burberry struggles to drive meaningful growth. Long-term earnings per share and compound annual growth rate is low vs the peer group while valuation is at a premium.”
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2. Reckitt Benckiser – Buy
Third quarter sales may have been disappointing but this household goods manufacturer is still a buy, according to Liberum Securities, which says Reckitt Benckiser (RB) is building a “consumer health powerhouse”.
“In our view, Reckitt’s strategic focus on faster growing, higher margin health and hygiene categories underpins top quartile organic sales growth,” says analyst Robert Waldschmidt.
“We estimate 5%, moderate-to-nice earnings before interest and tax margin uplift driven by category mix and cost savings and sustainable double digit clean earnings per share growth.”
3. Crest Nicholson – Buy
Barclays has named Crest Nicholson (CRST) its ‘top pick’ after a period of underperformance that has left it looking “highly attractive”.
In a note about the building sector the bank said that housebuilders continue to trade well despite the brief spike in cancellations immediately after the Brexit vote.
“The EU referendum vote now joins a list of recent headwinds (a general election; the Scottish independence vote) that have failed to derail the sector. Indeed, as memory of the vote continues to fade, strong fundamentals come more sharply into focus,” says Barclays.
“With mortgage rates at record lows, Government commitment strong (Help to Buy equity loans remain in place until 2021) and an embarrassment of riches on offer in the land buying market, fundamentals remain intact.”
Crest Nicolson has a strong top-line growth focus driven by a move to higher price points. The group also has “highly-regarded land buying credentials and the fastest sales rate in the listed space.”
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4. BT – Sell
Shares in telecommunications firm BT (BT) may be cheap following a 15% share price fall over the past six months, but Deutsche Bank has retained its sell recommendation. There are concerns about operations and the strong competition in the sector.
“BT shares have under-performed year-to-date and are arguably no longer expensive versus peers,” said analyst Robert Grindle.
“However, we view the risk of deteriorating operational news flow as high, especially as Virgin Media’s network expansion programme gains momentum, Sky enters the mobile arena, and Vodafone makes deeper in-roads into consumer fixed.”
5. United Utilities – Buy
Investec has upgraded United Utilities (UU) to a buy on the basis that “there remains long-term value to be found based on secular fundamentals…there remains scope for earnings growth over the current regulatory periods,” according to analysts.
United Utilities was given a target price of 1,000p and described as “potentially undervalued versus peers”.
Investec added that the scope for a special dividend was being “substantially” undervalued by the market.
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