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The Expert View: Aviva, Kingfisher and Dunelm

Our daily round-up of analyst recommendations and commentary, featuring William Sinclair and Robert Walters.

by Harry Brooks on Jul 06, 2012 at 05:01

We’ve chosen some of the best comment from analysts to give you their views on Aviva, Kingfisher, Dunelm, William Sinclair and Robert Walters.

Key stats
Market capitalisation£8,314m
No. of shares out2,906m
No. of shares floating2,871m
No. of common shareholdersnot stated
No. of employees36562
Trading volume (10 day avg.)10m
Profit before tax£483m
Earnings per share16.68p
Cashflow per share34.47p
Cash per share793.02p

*Correct as at 5 Jul 2012

Analysts prepare to be patient as Aviva chairman acts

Analysts gave Aviva (AV.L) a positive reaction to its strategic review which will see the composite insurer sell or close around a quarter of its businessess. John McFarlane, the insurer's new chairman, said the disposals would simplify the group, boost capital strength and improve financial performance. McFarlane, who assumed an executive role after former chief executive Andrew Moss was ousted in May after the shares lost a third of their value, asked shareholders to be patient saying the shake-up would take place at a difficult time.

McFarlane said there would be no need for a rights issue or a dividend cut provided economic conditions did not worsen and, if they did, his preference would be to sell assets. Businesses up for sale include its UK bulk annuities division, its South Korean arm and possibly its US operation.

Barrie Cornes at Panmure Gordon reiterated 'buy' with a target price of 425p, describing the announcements as 'logical and sensible'. 'Given the rock bottom valuation we believe that this represents a very attractive entry point. The shares will rally in the next 12-18 months even in flat markets.' Berenberg Bank and Oriel Securities continued to 'hold' with respective price targets of 575p and 400p. The shares closed up 3.2p at 284.6p on a forward yield of 9%.

Key stats
Market capitalisation£6,603m
No. of shares out2,369m
No. of shares floating2,348m
No. of common shareholdersnot stated
No. of employees67386
Trading volume (10 day avg.)6m
Profit before tax£640m
Earnings per share26.95p
Cashflow per share37.90p
Cash per share24.78p

*Correct as at 5 Jul 2012

Nomura cuts Kingfisher's target price on wet weather

David Payne, analyst at Nomura, has reduced his target price for retail group Kingfisher (KGF.L) as he expects the UK's temperamental weather and unhelpful foreign exchange movements to have weighed on its sales in the second quarter.

The analyst said that the group, whose stores include B&Q and Screwfix, would see sales hit by the poor weather, with like-for-like sales to fall 0.2% despite easier comparables over the quarter. Changes in currency exchanges will compound this, he added, resulting in an absolute sales decline of 2.6%. The knock-on effect of this sees the analyst's 2013 financial year pre-tax profit expectation fall 1.5% to £802 million.

'Although profit will not be reported until the interim results, we estimate Q2 EBIT [earnings before interest and tax] to have declined 1.2% year-on-year, with continued cost savings helping to offset underlying inflation. That said, we don’t think enough will have been achieved in the second quarter to justify holding financial year estimates,' he said.

Shares in the group, for which Payne has a target price of 325p, down from 340p previously, closed at 275.60p on Thursday, down 5.90p or 2.10%.

Key stats
Market capitalisation£1,074m
No. of shares out202m
No. of shares floating82m
No. of common shareholdersnot stated
No. of employees6624
Trading volume (10 day avg.)0m
Profit before tax£60m
Earnings per share29.35p
Cashflow per share36.25p
Cash per share17.44p

*Correct as at 5 Jul 2012

Seymour Pierce lifts Dunelm's target price

Freddie George, analyst at Seymour Pierce, has increased his target price for specialist homewares retailer Dunelm (DNLM.L) following a trading update that beat his expectations.

In the 13 weeks to 30 June like-for-like sales rose 21.2% on the same period of last year, with total revenues hitting £149.7 million. In contrast to other retailers featured in today's Expert View, the wet weather was a boon for Dunelm, with management estimating that it boosted sales by 6.5%.

'Following this update, we are raising our 2012 pre-tax profit forecast from £91.5 million to £96 million and our 2013 pre-tax profit forecasts by £3 million to £101 million,' George said. He added that the company has outperformed the market by 16% and the sector by 5% since the beginning of the year, and he'll look to upgrade from 'hold' to 'buy' next time the share price falls.

Shares in the group, for which George has a target price of 520p, up from 470p previously, closed at 531.00p on Thursday, up 19p or 3.71%.

Key stats
Market capitalisation£26m
No. of shares out17m
No. of shares floating11m
No. of common shareholdersnot stated
No. of employees346
Trading volume (10 day avg.)0m
Profit before tax£2m
Earnings per share13.37p
Cashflow per share25.37p
Cash per share20.04p

*Correct as at 5 Jul 2012

WH Ireland cuts target price for William Sinclair

Nick Spoliar, analyst at WH Ireland, has cut his target price for horticultural products maker William Sinclair (SNCL.L) following a trading update that revealed the negative impact of the miserable weather.

According to the Environment Agency UK rainfall between April and June 2012 was the heaviest since records began in 1910, and this left William Sinclair unable to harvest peat at full capacity, and it'll need a prolonged period of dry weather to get up to speed again.

The trading update also said that the poor weather meant gardeners stayed indoors: 'demand was below our normal levels and, with our main selling season drawing to an end, the chances of recovering any of the shortfall are small,' it said.

Spoliar has subsequently cut his pre-tax profit forecasts for the current year from £3.3 million to £2.3 million, and his target price falls from 245p to 200p. 'Despite the weather, SNCL remains a strong leader in a consolidating market with significant underlying value potential. We retain our Buy recommendation,' he concluded.

Shares in the group closed at 152.00p on Thursday, down 15.50p or 9.25%.

Key stats
Market capitalisation£153m
No. of shares out77m
No. of shares floating73m
No. of common shareholdersnot stated
No. of employees1934
Trading volume (10 day avg.)0m
Profit before tax£10m
Earnings per share12.72p
Cashflow per share17.26p
Cash per share37.79p

*Correct as at 5 Jul 2012

Shore Capital downgrades Robert Walters

David O’Brien, analyst at Shore Capital, has downgraded recruitment consultancy Robert Walters (RWA.L) on the back of a disappointing trading update.

In the quarter ended 30 June group gross profit hit £47.6 million, up 3% on the same period of 2011. However, O'Brien pointed out that net free income fell 3.3%, which he said highlighted 'he ongoing challenges within the banking and financial sectors, particularly in Asia and the ongoing uncertainty across the eurozone'.

The analyst added that income should start to rise in the second half of the year as 11.7% rise in staff levels should begin to have an impact. 'However, the cost of those consultants will weigh heavily and as a result, we will look to reduce 2012 and 2013 expectations markedly. We therefore reduce our recommendation to sell (from hold).'

Shares in the group closed at 194.50p on Thursday, down 14.50p or 6.94%.

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  • Kingfisher PLC (KGF.L)
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  • William Sinclair Holdings PLC (SNCL.L)
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  • Dunelm Group PLC (DNLM.L)
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  • Robert Walters Plc (RWA.L)
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  • Aviva PLC (AV.L)
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