Broker snap: N+1 Singer positive on Carperight turnaround, but forecasts cut

N+1 Singer has kept its 'buy' rating for floorings retailer Carpetright despite another profit warning for the firm this week, saying it still remains upbeat about its turnaround plans.The company said on Tuesday that it now expects full-year underlying profits to be below the lower end of current market expectations.N+1 Singer has still reduced its full-year pre-tax profit forecasts for the company by 29% from £10.5m to £7.5m for the year ending April 2014, and has cut estimates for the next two years by 16% and 9%, respectively.Analysts Mark Photiades and Matthew McEachran said that Carpetright delivered a "solid outcome" in the UK during the third quarter "where self-help initiatives continue to gain traction". UK like-for-like (LFL) sales grew by 1.9% during the period, picking up from just a 0.2% increase in the second quarter. However, the performance in the Rest of Europe division was weak with LFLs falling by a worse-than-expected 7.7%, compared with the 7% decline predicted.This 'miss' was blamed on a disappointing performance in Holland "where market conditions remain very challenging and management actions have yet to bear fruit", Photiades and McEachran said.The target price for the stock has been lowered from 670p to 640p."The 'buy' case remains dependent upon an operationally geared recovery in the UK as a raft of positive self-help initiatives coincide with recovery in Carpetright's addressable markets," the analysts said."A 10% earnings before interest and tax margin is very plausible [compared with an estimated 4.4% in the year ending April 2016] which would drive earnings per share back to c50p and lift the stock value back up to around 1,000p before factoring in any potential European recovery."The stock was down 0.63% at 551.5p by 10:50 on Wednesday.BC