Booker steams ahead

The economic malaise which is making trading tough for so many UK food retailers doesn't seem to have dented sales at cash-and-carry operator Booker Group (BOK). The wholesaler reported robust fourth-quarter figures, with like-for-like sales growth of 2.2 per cent compared with the same quarter last year. Consequently, underlying sales for the full year rose 3.3 per cent to £4bn.

The catering business did particularly well, with sales rising 6.2 per cent in the year, while sales to retailers rose 2 per cent. Fourth-quarter tobacco sales did fall 0.8 per cent, to finish 1.3 per cent higher for the year, but non-tobacco sales increased 4.3 per cent in the quarter and were 4.5 per cent higher at year-end. What's more, customer numbers swelled and internet sales jumped 11 per cent to £704m. Further afield, expansion into India continued with the opening of a third branch in Mumbai.

The Competition Commission is finalising its review of Booker's acquisition of Makro, but provisional clearance has been granted and the final report is expected by 24 April. Makro has been struggling in recent years - but Booker believes it can restore it to profitability and analysts are expecting the move to deliver an impressive growth boost for the group.

Panmure Gordon says...

Buy. Booker's fourth-quarter statement is good and continues the trend seen in recent quarters, despite tough comparisons. Since returning to the stock market, Booker has delivered strong earnings and dividend growth and excellent cash generation. We think the addition of Makro will enhance Booker's growth - by 6 per cent in 2014, 19 per cent in 2015 and 21 per cent in 2016. The valuation, of 22.8 times our 2014 EPS forecast of 5.43p, does look high. But adding in Makro should help cash generation to accelerate and we expect the return on capital employed to improve strongly - to perhaps 40 per cent by 2015, from 29 per cent in 2012. We've also raised our pre-tax profit forecast slightly for 2013 from £93.3m to £95m. We remain buyers with a price target of 130p.

Peel Hunt says...

Buy. Fourth-quarter sales were slightly ahead of our expectations and the group is continuing to make good progress. The Makro deal will enable Booker to secure cost savings and revenue synergies. The rating is now high, but there is much to like about Booker given the well-invested asset base, impressive management team, strong cash generation and a rising return on capital employed. Management is comfortable that its sales target - £6bn within three to four years - is achievable. We believe a 3 per cent margin should be comfortably achieved and this equates to £180m of operating profit, almost double the current level. There is material upside to the Makro deal as well as further improvement from the existing Booker estate. Expect adjusted EPS of 4.4p for 2013 and our price target stands at 130p.