>>> Leisure sector best ideas
* Carnival (Buy, PO raised to 5400p / US$80 from 4530p / US$68). We think Carnival is still in the early stages of a multi-year change story which is set to improve operational performance, consumer opinion and financial returns. We forecast ROIC and margins returning to the 2005 peak by 2020E, EPS doubling by 2019E and, surplus cash building.
* Whitbread (Buy from Neutral, PO 5080p). With the shares well off their highs, consensus expectations looking more conservative, the fundamental low beta growth story intact (EPS CAGR 11%) and with a less frothy valuation (16x Feb17 PE), we raise WTB to Buy.
* Compass (Buy, PO raised to 1350p from 1250p). We remain bullish on the low beta, high quality, cash generative, long duration double-digit TSR thesis. With c.7% share of a large but fragmented market (c.£200bn) we see many more years of market share gains.
>>> Transport sector best ideas
* Air France-KLM (Buy, PO EUR10). Our EBIT forecasts are 90% and 66% above consensus in 2016 and 2017 due to lower fuel and lighter capex expectations. It trades at 3x PE in 2016 with a FCF yield of 17%.
* Deutsche Post (Underperform, PO EUR 23). Amazon recently confirmed that it’s considering expanding its in-house delivery operations in Germany. This combined with Asian FX risks and mail volume risks (regulated price rises) underpin our underperform.
* Royal Mail (Buy, PO 600p). The key upside risk is the potential to stem market share losses and benefit from rapid growth in parcels (c.10%pa) and eCommerce in the UK. Operational gearing to volume improvements is high (1% volume = c.10% EPS).