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Broker spotlight: M&S, AB Foods, Rolls Royce, SABMiller...

M&S pleases market but brokers struggle to see reasons for optimism unlike AB Foods whre Primark performance prompts raft of upgrades. SABMiller best of brewers says Berenberg.
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M&S (LON:MKS) may have surprised some of the shorters today with its brighter than expected interims, but City analysts will need more convincing than one set of half decent numbers.

Better news on margins, womenswear sales and a higher dividend sent the shares up by nearly 10%, but Canaccord was quick to reiterate its sell stance and lowered its target price to 385p on an earnings reduction for 2015.

The broker believes it will take a number of seasons before there will be a marked improvement in performance. It acknowledges the womenswear autumn/winter ranges have improved “but the branding and the demographic and age profile of its customer being targeted remains unclear”.

Canaccord is also underwhelmed by attempts to upgrade the supply chain and IT, while also pointing that profits will be broadly flat over the last seven years ranging consistently between £600m and £700m and are likely to remain in this range over the medium term.

Credit Suisse said it woudl not be changing its profits forecast of £628mln (EPS 32p) as it is increasingly unlikely that general merchandise can return to positive like-for-like in the second half.

"After 4 years of earnings downgrades we see little chance of this changing, and as hopes fade of a turnaround we can only see the dividend providing support. Our 360p target price represents a 5% dividend yield." Underperfrorm is its rating. 

AB Foods (LON:ABF) is a different kettle of fish, especially the “magnificently” performing retail division Primark. 

Citi expects Primark’s international expansion programme will continue to be a success for many years to come.

There is a parallel at Primark’s currently is similar to H&M in 2001, it says, with the potential to replicate H&M’s space growth (12% a year from 2001 to date) beyond ten years.

After earnings from the sugar business are rebased, Citi expects group earnings growth in the mid –teens  to resume  driven by Primark. 

Taken together with a £32 valuation by division, Citi has upgraded its rating to Buy (from Neutral). 

UBS has not changed its buy on aeroengine maker Rolls-Royce (LON:RR.)after the announcement of a £120 mln restructuring and change of finance chief. 

The broker has cut profit forecasts by about 4-5% underlying from 2015, plus 3.5% in 2014 and 2015 due to the restructuring announced yesterday, while the price target is now 1,100p  (1,160p) but 80% of its  profits are not cyclical it says.

Berenberg has run its ruler over the global brewers and plumped for SABMiller (LON:SAB) as its top pick. It is most advantageously positioned brewer that also carries M&A optionality for its  shareholders with an ABInBev-SABMiller tie-up making a lot of sense.


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