Broker tips: Next, Go-Ahead, Autonomy
Expectations of lower-than-predicted sales prompted Numis Securities to downgrade its rating on Next to 'hold' from 'buy'.
The broker said it was cutting its like-for-like sales forecast on the clothes retailer by 7%. However, it added that Next would have to see like-for-like sales falling by at least 15% before it turned free cash flow negative. It keeps its 1,175p price target on the company.
JP Morgan has trimmed its price target on bus and rail operator Go-Ahead to 1,924p from 1,945p, while maintaining its 'neutral' rating on the stock.
The broker said the price target reduction was due to increased weighted average cost of capital as bond yields have risen. However, it also raised its 2007/08 earnings per share estimate to reflect strong rail revenue growth, continued underlying bus revenue growth and easing in labour costs pressure.
On rail, JPM said it expected Go-Ahead to be helped by a revised profit sharing profile on its company Southern, which operates in South London and between London and the coast. However, it added that there was still a "Southern rail contract re-bid risk."
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It said bus revenues remained on the trend of around 8% to 9% annual growth, adding that rising fuel costs could potentially be recovered by a 3% to 4% rail increase.
On labour, JPM said that costs were easing and that any slowing in the UK economy may reduce wage pressures. It said its estimates showed that each 1% less on wage increases saves around £3.5m in costs, equivalent to offsetting a 3p a litre rise in fuel costs.
JP Morgan has lowered its price target on information access technology company Autonomy to 855p from 875p after last week's 'mixed' first quarter results.
The broker keeps its 'neutral' rating on the stock. It said it remains cautious over Autonomy's short-term outlook. "Despite strong fundamentals, we expect the stock to be range-bound near-term due to high valuations and macro risks," JPM said.
