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Expert View special: Panmure's 13 share tips for 2013
It's a broker's dozen as we present Panmure's 13 share tips for the new year.
by Gavin Lumsden on Jan 09, 2013 at 05:01
Panmure's share tips for 2013
Panmure reckons its top picks for 2012 rose by an average 46% last year, beating the 9% rise in the overall market (as measured by the Datastream Total UK Market index).
In all fourteen of its 17 New Year tips a year ago made money. The 2012 recommendations were: Enterprise Inns (ETI.L) +286%, Gable Holdings (GAH.L) +99%, Bodycote (BOY.L) +72%, Nichols (NICL.L) +60%, YouGov (YOU.L) +57%, Galliford Try (GFRD.L) +57%, Micro Focus (GFRD.L) +51%), Communisis (CMS.L) +45%, Hutchison China (HCM.L) +31%, Vphase (VPHA.L) +25%, WS Atkins (ATKW.L) +23%, RPC (RPC.L) +11%, LSL Property (LSL.L) +7%, Earthport (EPO.L) +2%, Asian Plantations (PALA.L) -1%, Endace (EDA.L) -10% and Faroe Petroleum (FPM.L) -11%.
See the following pages for its 13 tips for 2013.
Panmure is sticking with the Singaporean operator of four palm oil plantations in Malaysia after a disappointing year for the shares in 2012.
Analysts Graham Jones and Damian McNeela expect ‘2013 to be a year of significant development’. With all four estates due to be fully planted by the end of this year and a further 7,000 hectare plantation planted in 2014, they say most of the ‘heavy lifting’ has been done. Palm oil is often the vegetable oil used in an array of supermarket goods.
Panmure thinks the company, which floated in 2009, could attract bidding interest from a Malyasian pension provider or one of its larger rivals. It has set a target price of 380p, compared to 234.5p today which values it at £109 million.
Caretech, the Kent-based support services provider for adults with learning difficulties, is Panmure’s top pick of the year.
Analysts Savvas Neophytou and Mike Allen say: ‘We believe that Caretech should be a core holding for investors looking to introduce healthcare or attractive special situation stocks into their portfolio. It provides good growth (7% adjusted EPS [earnings per share] CAGR [compound annual growth rate] for 2011A [announced] – 2015E [estimate]) and defensive characteristics with its main areas of operations being in the stable UK healthcare markets.’
The analysts have set a price target of 230p, compared to the current share price of 156p, which values the company at £80 million.
Caretech is also a top 10 holing in the Henderson UK & Irish Smaller Companies fund run by Robert Giles and Adam McConkey.
The AIM-listed developer of seaside resorts in emerging markets is a key smaller company pick for Panmure this year. Panmure also acts as corporate broker to the company, which is currently valued at £125 million on a share price of 28.5p.
Analysts Mark Hughes and Rachael Applegate say the firm is in a good position after raising €50 million from investors while making progress with its upmarket property portfolio in the Mediterranean and Caribbean.
With its shares trading at less than a third of net asset value of its investment portfolio, the Panmure analysts believe the shares can double over the next 12 months.
Dolphin Capital is a top 10 holding of both the Close Beacon Investment fund run by Deryck Noble-Nesbitt and the F&C UK Select investment trust managed by Phil Doel.
A pre-Christmas contract win with the Bank of America was a ‘major milestone’ for Earthport, the operator of low value cross-border payments systems, according to Panmure, its corporate broker.
Analysts Mike Allen and Paul Jones believe Earthport is well positioned to deliver significant growth. They reduced their target price from 28p to 24p to reflect the dilution of a share placing in November. ‘This would be a mere starting point if the company is able to execute across all of its longer-term opportunities,’ they say.
The shares currently trade at 18.4p.
Faroe Petroleum is another of Panmure’s corporate broking clients. But after an 11% fall in the share price last year left the oil exploration company trading at a discount of over 30% below net asset value, Panmure is convinced the shares are undervalued.
‘A robust drilling programme in 2013 with four wells scheduled for drilling in Norwegian waters could provide the catalyst for a rerating of the shares,’ says analyst Leila Reddy. A 78% tax rebate from the Norwegian government should reduce the cost of exploration, she adds.
Reddy has set a target price of 205p. The shares currently trade at 135p, valuing Faroe at £287 million.
Faroe Petroleum is a top 10 holding of the Schroder ISF Global Small Cap Energy fund.
The AIM-listed insurer specialising in the construction and commercial sectors was Panmure’s top pick in 2012. Despite its share price doubling last year, analyst Barrie Cornes believes there is more to go for in 2013.
Cornes says the recent decision of insurance broker Towergate to add Gable to its panel shows the seven-year-old company has established itself in the market.
He writes: ‘Gable has proved adept at exporting the success of a product line in one country into another. We anticipate that this strategy will continue further increasing gross written premium.’
With the shares trading at just eight times earnings, a big discount to the sector average, Cornes is tipping them to reach 63p. The current share price of 47p values Gable at £53 million.
Panmure is a corporate broker to Gable Holdings.
Shares in Johnston Press, the publisher of the Scotsman, Yorkshire Post and a host of local papers, doubled last year as the company restructured and pushed on with the ‘digitisation’ of its business under new chief executive Ashley Highfield.
Panmure, which acts as corporate broker to Johnston, believes there is more to go for in 2013. Despite the advertising downturn, analyst Alex DeGroote says Johnston can still generate over £30 million in cash flow. As restructuring charges drop out this should feed through to the bottom line and help the group reduce its debts if it continues to keep a grip on costs.
Johnston Press faces competition from Local World, the new regionals consortium backed by hedge fund manager Crispin Odey that has combined the local paper businesses of both the Daily Mail and the Daily Mirror groups.
It is the biggest holding (9% at the end of October) of the Close Special Situations fund run by Deryck Noble-Nesbitt. It is the second biggest holding of the Henderson Fledgling investment trust.
The shares currently trade at 12.25p, valuing Johnston at £78 million. DeGroote has set a 18p price target.
The operator of technical call centres for a range of consumer technology groups, Regenersis had a good year in 2012, reinstating the dividend and gaining its first contract in the US, with a major cable TV network.
Analysts Paul Jones and Mike Allen forecast profits of £8.7 million for the year to June 2013 rising to £10.6 million in 2014, with earnings per share of 15.9p rising to 19.1p. These estimates assume no contribution from the US, and so are highly conservative say the analysts.
They have raised their target price to 206p from 159p. The shares closed yesterday at 142p, valuing Regenersis at £61.5 million.
Panmure acts as corporate broker to Regenersis.
With a market value of £745 million, SIG is one of the biggest companies in Panmure’s tip list. The Sheffield-based provider of insulation and specialist building products is well positioned to benefit from the push to energy saving, even if construction is in the doldrums.
Analyst Andy Brown says: ‘The combination of volatile energy prices, carbon emissions targets and regulatory driven demand provides structural positives for SIG. European growth opportunities remain, while improved group volumes should encourage positive operational gearing.’
Freed by the 2011 demerger from Punch Taverns, the country's biggest pub chain, Spirit Pub Company had a good 2012, with its shares surging by 50%.
Nevertheless, analysts Lindsey Kerrigan and Simon French say the stock trades at an undeserved discount to peers like Marstons and Greene King. They say Spirit is not given the credit it deserves for a refurbishment programme and general tighter management control.
They have set a 75p target for the shares and predict that if the stock does not rerate it will fall to an industry bidder.
The shares closed at nearly 68p yesterday, valuing Spirit at £446 million.
The company is a top 10 holding in both the Aberforth UK Smaller Companies fund and the Aberforth Smaller Companies investment trust.
The recovering chocolate shop group is another top 10 holding in the Henderson Fledgling investment trust, which often catches established companies when they fall on hard times and slip out of the main FTSE indices.
Thorntons has suffered from a decade of rising raw material costs and high rental costs on its stores. However, analysts Philip Dorgan and Jean Roche believe its three-pronged strategy of increasing online and supermarket sales, restoring profitability by better buying and improved manufacturing and reviving the brand will pay off. They recently slapped 'buy' on the stock with a 50p price target.
They say: 'Five years ago, Thorntons' share price was around 180p. At the time, it was making EBIT [earnings before interest and tax] of around £8.5 million and the valuation was 20x [earnings]. We think that Thorntons can get back to that level of EBIT in FY2015. We are not suggesting that the shares will multiply by six, but this is a highly financially geared situation and the upside should therefore be considerable.'
The development tool software company was a hot tech stock of 2012 as investors lapped up the shares at its flotation in June. Analyst George O'Connor reckons 2013 is the year WanDisco 'migrates from newbie to superbee' as it becomes 'a platform company with a unique patent approved data replication technology' serving a number of popular applications.
'For investors this means WanDisco has a scalable, leverageable operating model with products at varying stages of the product life cycle, maturing at different rates - ensuring that growth rates (69% latest reported) are kept punchy,' says O'Connor.
He has a price target of 537p on the shares which closed at 481.5p yesterday, valuing the company at £99 million.
Zambia's largest beef producer is also a food conglomerate involved in the production of procession, distribution of beef, chickens, eggs, milk and dairy products. The company, which is listed in Lusaka and London, benefits from Zambia's buoyant economy with the IMF forecasting GDP growth to rise from 6.5% to 8.2% this year.
Zambeef reported a 93% leap in adjusted pre-tax profits to US$13.5 million in 2012. Analysts Damian McNeela and Graham Jones forecast profits to jump a further 40% to US$19 million this year. With the shares trading at 8.6 times forecast earnings they have set a 53p price target. The shares closed yesterday at 42p, valuing Zambeef at £87 million.
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Look up the shares
- Asian Plantations Ltd (PALA.L)
- Caretech Holdings PLC (CTH.L)
- Dolphin Capital Investors Ltd (DOLC.L)
- Earthport PLC (EPO.L)
- Faroe Petroleum PLC (FPM.L)
- Gable Holdings Inc (GAH.L)
- Johnston Press PLC (JPR.L)
- Regenersis PLC (RGS.L)
- SIG PLC (SHI.L)
- Spirit Pub Company PLC (SPRTC.L)
- Thorntons PLC (THT.L)
- WANdisco PLC (WAND.L)
- Zambeef Products PLC (ZAMB.L)