PANMURE GORDON’S MORNING NOTE

Associated British Foods : A sparkling Primark Christmas more than offsets sugar and currency headwinds
Recommendation – Hold
Analysts – Graham Jones +44 (0)151 243 0971 & Damian McNeela +44 (0)151 243 0972

Whilst most multinational FMCG companies are still in an earnings downgrade cycle from currency weakness, and ABF also has a further lurch down in world sugar prices to deal with, a fantastic looking Christmas trading performance by Primark (we estimate LFL’s over Christmas were up a whopping 8%) means that we are actually nudging up our group EPS forecast from 101.0p to 102.0p. Whilst most of the praise will inevitably be heaped on Primark, Ingredients and Grocery have also performed well. With a higher weighting in our sum-of-the-parts for Primark, although with the group now trading on 25.9x P E and 13.7x EV EBITDA for Calendar 2014E, we think the shares are surely due a pause for breath.

AstraZeneca : The cost of change
Recommendation – Sell
Analyst – Savvas Neophytou +44 (0)151 243 0973

We are pushing through changes to forecasts to take into account the Bristol Myers Squibb diabetes JV transaction (incremental $1.6bn revenue in 2017) announced in December, the new medium-term guidance announced this week (incremental $1.5bn) and rebasing some of our expectations on R&D investment. This results in modest downgrades to our EPS forecasts by 1.9% (FY2013E) and 0.7% (FY2014

Booker : Q3 IMS
Recommendation – Hold
Analysts – Simon French +44 (0)151 243 0974 & Karl Burns +44 (0)151 243 0976

Booker has announced solid Q3 trading reporting 2.0% LFL sales growth (non-tobacco +4.1%, tobacco -1.7%) for the 16 weeks to 3rd January against a comparative of 3.1% albeit a slowdown on the 3.5% reported in Q2. The Makro turnaround is progressing well although non tobacco sales were down 5.9% as the group stopped selling certain lines such as TVs. The group comments that expectations for FY profits and net cash remain in line market expectations and we therefore expect no change to consensus forecasts of £116.8m PBT (5.4p EPS), although we think the risk to forecasts is on the upside. This leaves the stock trading on a CY 2014E adjusted EV EBITDAR of 12.9x, a P E of 26.4x and yields 1.8%. We reiterate our Hold.

Bovis Homes : Forward sales +77% YOY
Recommendation – Buy
Analyst – Mark Hughes +44 (0)151 243 0965

An increase in the number of active sites, sales rates, volumes, pricing and margins have contributed to a significant uplift in EPS and NAV for Bovis over the past 12 months. This is driving a 230 bps improvement in ROCE to 10%. With forward sales up 77% going into 2014, the company is in a very strong position. Therefore, we continue to see the current PNAV discount vs. the company’s peers as anomalous. Buy,

Cambria Automobiles : AGM statement
Recommendation – Buy
Analysts – Mike Allen +44 (0)151 243 0966 & Paul Jones +44 (0)151 243 0967

Cambria has issued a very confident trading update suggesting strong momentum in its new car business and good outperformance vs. the market in used and aftersales. We believe this should lead to earnings upgrades at the H1 results, but maintain our forecasts for now. Our target price also looks conservative in light of the strong momentum in the business and the sector re-rating we have seen so far this year. We re-iterate our Buy recommendation and believe this confident update should be taken well by the market this morning.

Computacenter : Even with the French tryst, Computacenter has a banner Q4
Recommendation – Hold
Analysts – George O’Connor +44 (0)20 7886 2755 & Adam Lawson +44 (0)20 7886 2749

A banner Q4 sees Computacenter end FY nicely ahead of guidance and our estimates. We think that this is a mix of Q4 budget flush (ie seasonal) and the XP effect (on 8 April Microsoft is scheduled to release its last security update for Windows XP) which together make for a strong year end. Likely better for the longer term is news of a rack of services deals inked by the UK in Q4 – ie neither seasonal nor XP related – which bodes well for performance through 2014 and beyond. Despite improvements France (weaker than expected) and Germany (a touch better) are holding back group performance and need to be better copies of the successful UK operating model. We increase 2013E and 2014E forecasts -among the changes 2013E PBT from £76.9m to £80.2m, and 2014E from £80m to £85m.. Buy

Ladbrokes : FY pre-close trading update
Recommendation – Hold
Analysts – Karl Burns +44 (0)151 243 0976 & Simon French +44 (0)151 243 0974 & Lindsey Kerrigan +44 (0)151 243 0975

Ladbrokes has announced its FY2013 pre-close update with trading for FY2013 expected to be around the middle of the current range of analysts’ consensus of between £130m and £151m (PGe £145m). Furthermore, Ladbrokes is on track to complete the upgrade of its retail machines in time for the June 2014 World Cup. The company is on track for its key strategic objectives during H1 2014 driving digital performance for H2 2014, whilst the mobile sports product has been delivered. The group is also committed to the dividend at its current level for 2013 and 2014. We leave our forecasts unchanged post this update. Trading on a 2014E PER of 13.3x and an EV EBITDA of 9.3x, yielding 5.1% we retain our Hold recommendation on Ladbrokes. Whilst visibility on Digital profits remains limited looking ahead to FY2014 and FY2015, we believe the launch of the new gaming machines in the UK Retail estate, in addition to the attractive dividend yield could provide support to the share price.

Lavendon Group : Pre close update
Recommendation – Hold
Analysts – Paul Jones +44 (0)151 243 0967 & Mike Allen +44 (0)151 243 0966

An update from Lavendon suggests all is in line with profit forecasts for 2013 and no change to 2014 expectations. Group revenues finished slightly weaker than expected after lower Q4s from both Germany and the Middle East, though improving trends in the UK bode well for the future, and efficiency improvements have been implemented ahead of schedule. We leave our forecasts unchanged. We remain Holders.

Polar Capital : Q3 update positive
Recommendation – Hold
Analyst – Keith Baird +44 (0)20 7886 2751

Net inflows of $1bn in Q3 remained very strong, though the quarterly trend is down. We assume that Japan (40% of AUM) continues to feature prominently where there is a sustainability issue. Performance fees disappointed somewhat. The recent powerful rally in the shares puts them on an above average 16x next year’s earnings, justifiable only if AUM growth remains high.

Rockhopper : Sea Lion Development Update
Recommendation – Buy
Analyst – Jack Allardyce +44 (0)131 301 5389

Rockhopper says that it has opted for a Tension Leg Platform (TLP) at the Sea Lion development, with first oil from the project now likely to be in early 2019. The company and partner Premier are also seeking a rig with other Falklands operators for a new exploration programme from late 2014 early 2015. We retain our Buy recommendation.

St James’s Place : Q4 Sales preview and increase in Target Price to 890p per share
Recommendation – Buy
Analyst – Barrie Cornes +44 (0)20 7886 2758

On Thursday, 23rd January, St James’s Place will release its Q4 2013 new business sales figures. We expect the continued recovery in equity markets to have had a positive impact on sales in the period. We’re forecasting 2013 new business sales at £889m APE (+19.6%) with Q4 in isolation at the top end of an early range at £258m APE (+15.6%). Following the sale of the remaining Lloyds Bank stake the shares have rallied well. We view the outlook as positive and without the former stock overhang. Buy.

Thorntons : Strong Q2 but no change to FY expectations
Recommendation – Buy
Analysts – Simon French +44 (0)151 243 0974 & Karl Burns +44 (0)151 243 0976

Thorntons has announced a strong Q2 reporting 6.3% sales growth for the 14 weeks to 11 January. FMCG sales increased 17.1%, an acceleration on the Q1 performance and Retail sales declined by 2.9%, less than in Q1. Within FMCG, UK Commercial sales rose by 21.1% reflecting excellent sales of seasonal specialities. Within Retail, LFL sales increased 3.5%, against a comparative of 1.3% and Consumer Direct (online) sales increased 27.0%. The group’s outlook remains unchanged and we expect no change to market expectations of £7.4m PBT although we think the risk to consensus remains on the upside, subject to ‘normal’ Easter trading. Reflecting this upside risk and reiterate our Buy recommendation.

Travel & Leisure: Pub & Rest industry LFL sales +3.3%
Analysts – Simon French +44 (0)151 243 0974 & Karl Burns +44 (0)151 243 0976 & Lindsey Kerrigan +44 (0)151 243 0975

The Coffer Peach Business Tracker reveals that the pub & restaurant industry reported 3.3% LFL sales growth for the six weeks to 4th January. Drink-led London pubs performed best, reporting 6.5% LFL sales growth although regional restaurant chains reported an encouraging 4.0% growth in LFL sales. We think these figures are broadly in-line with what the stock market has been expecting, albeit slightly weaker than those reported by Restaurant Group, Greene King and Spirit Pub Company. Encouragingly, inflation data published earlier this week showed continued slowing in food cost inflation, to significantly below menu price inflation. Combined with low rental and labour cost increases we think the margin outlook is better than at any point since 2009. We reiterate our Buy recommendations on Domino’s Pizza, Restaurant Group, Spirit Pub Company and Wetherspoon (JD).

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