| CATEGORY: BROKER RECOMMENDATIONS SECTOR: FOOD PRODUCTS |
Broker tips: Cadbury, Whitbread, HMV |
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Mon 14 Dec 2009
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LONDON (SHARECAST) - Cadbury published its defence against Kraft’s £10bn bid today, but with only limited near-term share price upside investors should be looking to 'reduce' holdings, says Charles Stanley.
Dairy Milk and Crème Egg maker Cadbury has confirmed fourth quarter trading is in line with expectations, maintained 2009 guidance and upped targets for the next four years.
The broker, who last week had the shares as a ‘hold’, thinks Kraft will have to raise its offer to about 850p or more if it wants to buy the business. The current cash and shares deal values the firm at just 727p.
Panmure Gordon says Cadbury’s decision to increase its sales growth target from 4-6% to 5-7%, means it should be able to deliver 12% growth in earnings and the dividend consistently going forwards.
Its discounted cash flow (DCF) model sees fair value of 1,064p. “The question now is what discount to this will Cadbury shareholders be willing to accept for certainty now.”
UBS has repeated ‘buy’ advice on books and music retailer HMV, believing its 40% discount to the sector due to structural issues should be nearer 25%.
The Swiss broker downgraded its full-year pre-tax profit forecast by 1% to £78m due to weakness at Waterstone’s, but kept its price target at 130p.
Full-year 2010 like for like sales forecasts for HMV UK go up to 3.5% from 3% previously, but predictions for the book chain fall to -4% from -3%.
"HMV remains cheap at c.7.5x cal 10E PE compared to the sector on 12.2x," UBS says.
“We believe short term downside risk is limited with the support of a 10% free cash flow (FCF) and 7% dividend yield."
Panmure Gordon has lifted its target price on Whitbread to 1675p from 1470p after a bullish trading update from the hotel and coffee shop owner.
Whitbread said it expects to deliver results ahead of the top end of market expectations after seeing a 6.7% rise in third quarter sales at Costa Coffee, a 2.3% rise at pub restaurants and the decline at Premier Inn easing to 3.1% against a 7.1% decline in the second quarter.
Panmure has raised its pre-tax profit forecast for Whitbread by 11% to £233.7m.
Charles Stanley keeps its ‘accumulate’ stance in expectation of further forecast upgrades as trading should continue to gradually improve during 2010.
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