Price Objective Changes
Considering recent events and the move in both the PGM price basket and the
equities we have raised our price targets for Aquarius platinum from Gbp400 to
GBp470, and Lonmin from Gbp1900 to Gbp2050.

We maintain our general preference for companies with at least some financial
leverage. With the recovery in commodity prices, we believe company balance
sheets will rapidly de-leverage, paving the way for further reactivation of growth
projects and, of course, more M&A.

In addition to these differing initial conditions, there is still uncertainty over three major issues, which in turn creates a range of possible outcomes in our forecast. Depending on how these issues progress, we’re looking at multiple potential resolutions of the inherent tension in the overall system. There will likely be some bipolar market outcomes.

Smiths is also working on automatic-detection software that eventually will eliminate the need for a visual body inspection — with an alarm going off when the computer spots any item beneath clothing — in order to avoid privacy issues. At present there is no firm decision on whether the equipment, which could cost up to £300,000 per unit, will be installed in British airports, although the Government is thought to be considering such a move in the new year.

Given the relatively conservative buyback, NESN could well be keeping their powder dry (possibly) to get involved in CBRY(probably alongside Hershey). If they do not get involved, it remains possible that NESN could increase the buyback or announce a special dividend.

Nestle currently trades on 14.5x FY11E PE, putting it on parity with its European
food peers. However, adjusting for its 31% stake in L’Oreal, the business is
trading on just 13x PE. We have a Buy rating on Nestle with a CHF57 price
objective.

Nestle currently trades on 14.5x FY11E PE, putting it on parity with its European
food peers. However, adjusting for its 31% stake in L’Oreal, the business is
trading on just 13x PE. We have a Buy rating on Nestle with a CHF57 price
objective.

In H1 M&S reported a steady improvement in LFL sales trends, with a -1.4% LFL figure reported in Q1 and a -0.5% LFL figure reported in Q2. These figures implied a 2-year decline of a little under 7%. Given anecdotes of improving demand levels in the period up to Xmas, some positive self-help on product ranges and branding, and given a comparative of -7% LFL in Q3 last year, we expect M&S to post a positive LFL sales update this time round. However, the timing of the Sale, combined with the additional promotional events that M&S ran in the run up to Xmas last year, makes the phasing of the comparatives slightly unusual and we suggest only a small positive LFL uplift (SCMe +1.0% LFL), accompanied by some improvement in the Non-Food gross margin trend to flat (vs -30bps in H1). Our sales forecast is split +2.0% LFL in Non-Food and flat LFL in Food.

In the last update (Q£ to end October), Next reported better than expected sales trends, with Retail LFL sales down just 1.3% (vs -2.5% LFL in H1) and with Directory sales ahead 5.1%. Total brand sales were therefore ahead by 3.1% overall in Q3. We forecast only a small improvement in the run rate in Retail over Q4 and the key Xmas period, which we believe could be overly conservative given the signs of improvement in the product offering and given the pick-up in Home related products, as reported by Dunelm and John Lewis. Home has been an area of significant focus and development over the last 12-18 months and uplifts in this category, although not split out, could be a swing factor. We forecast flat gross margins in both Retail and Directory, although the latter could yet benefit from better bad debt control than originally planned.

Based upon our Jan’10 PBT forecast of £474m rising to £509m next year, Next trades on a cal’10 PER of just 11.4x. We will also be looking out for strong cash generation and the distinct possibility that Next may end next year unencumbered by debt.

Stock Calls: We do not expect any material change in the overall view of sector prospects or of most of the companies.

Clearly, the degree of pre-Christmas promotion in Argos’ key markets may challenge its consensus profit forecast and

Specifically, we believe house prices will fall by around 5% over 2010 as a whole. Much will clearly depend on whether the economy can build on the probable return to growth in the fourth quarter of 2009, how much further unemployment rises, how much earnings rise, how quickly and to what extent credit conditions ease, and how many properties come on to the market over the coming months. On the positive side for the housing market, interest rates seem unlikely to rise for some considerable time to come and will then probably increase only gradually.