Broker tips: Foxtons, 888, Chemring
Foxtons' first-half results were "impressive", according to Canaccord Genuity.
The real estate company reported a 16% increase in turnover to £372.8m with property sales commissions up 32% to £37.8m.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 29% to reach £24.9m as EBITDA margins climbed by 330 basis points to 34.3%.
Canaccord gave the company a 'buy' rating, saying the EBITDA result was 2% above forecast.
"We value Foxtons with reference to its track record of generating high returns on invested capital, its ability to grow organically and its intention to return its free cash to shareholders.
"Our 382p May 2015 target price is based on a full-year 2015 price-to-earnings of 21x and a price to earnings growth of 1.0x. With 30% potential upside to our 382p price target and scope for a 4% dividend yield, we repeat our investment recommendation: Buy."
However, Canaccord noted the firm's warning about the second-half being affected by the spectre of higher interest rates and a clampdown on irresponsible mortgage lending.
Not only were interim results from 888 lower than its expectations, but broker Panmure Gordon says the online gaming group holds notable downside risks on several fronts.
A principal risk is from the UK government's planned levying of a point of consumption (POC) tax in December that will hit companies such as 888 that are registered offshore and previously could escape UK gambling taxes.
Furthermore, the entry of rival Pokerstars into the online casino market and a slow start to US online gambling trading are predicted to weigh on earnings.
Results for the first six months of the year showed total revenue increased 13% to $225m driven by unregulated markets, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increasing by 27% to $49m.
However, analyst Karl Burns pointed out that this excludes losses from the US joint venture and foreign exchange movements, which combined to reduce profit before tax (PBT) by 4% year-on-year to $34m, below expectations.
Burns expects revenue growth to slow into the second half and 2015 and is likely to cut full year 2014 PBT forecasts due to these factors.
Previously, the broker had forecast 2014 EBITDA forecast of $83.9m, falling to 2015 expected EBITDA of $63.7m, which compares to consensus estimates of $82m, falling to $71m.
"We remain more cautious of the group's top-line growth in a post UK POC environment, with consensus currently forecasting circa 5% top-line growth, despite suggestions from the company that it will cut marketing spend."
Burns retains his 'sell' recommendation and 96p price target, implying 26% downside to the shares opening price on Wednesday.
Panmure Gordon analyst Sanjay Jha issued a bullish note on Chemring, as the US officially ended its "humanitarian no-boots-on the-ground airstrikes" stance and Nato deployed forces in Eastern Europe.
The US is now planning military action in Syria and northern Iraq, possibly with the help of its allies, and with possible extensions to Libya, where Egypt and the UAE have reportedly launched airstrikes against Islamist-allied militias battling for control of Tripoli.
On Tuesday, Nato's secretary general Anders Fogh Rasmussen, said that forces will be deployed to new bases in eastern Europe for the first time to counter any threat from Russia.
"Europe's defence spending, which has been left behind in the global arms race, looks set to bounce," says Jha. "Poland, for example, is moving forward its purchase of 30 attack helicopters originally planned for 2016."
He argues that airstrikes alone will not resolve the issues and says "it is inevitable" that ground forces will be deployed, if only to help train local allies.
As a supplier of short cycle war-related products such as countermeasures, pyrotechnics and devices to help counter improvised explosive devices, Chemring "remains the most geared UK play to conflicts".
Growth is obviously dependent on the scope and length of the campaigns.
Until recently, consensus estimates have so far predicted earnings per share will bottom out in full year 2014 and grow by 5% and 10% in 2015 and 2016, respectively, largely reflecting operational efficiencies.
However, Jha believes that top line growth will be stronger than market expectations as conflicts spread, resulting in earnings per share growth of 30% and 50% in in 2015 and 2016, respectively, and he slaps a 'buy' on the shares.
AB