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The Expert View: Aviva, Prudential and Whitbread
Our daily roundup of analyst commentary on shares, also including Cobham and Devro.
by Michelle McGagh on Mar 11, 2016 at 05:00
Aviva 2015 results: good, bad and warnings
Insurer Aviva (AV) delivered a set of results ‘with a smattering of good, bad and warnings’.
Shore Capital analyst Eamonn Flanagan retained his ‘sell’ recommendation but does not have a target price on the stock following 2015 results. The shares rose 2.7% to 471.8p yesterday.
He said the ‘good’ focused on the ‘Solvency II coverage ratio of 180%’, a measure of insurer’s financial strength, which was better than the 155% expected and ‘the operating profits were better than we and the market had expected’.
The ‘bad’ was the 15% growth in the dividend to 20.8p. Flanagan said this was ‘well below our top-end 22p forecast and the market’s expectation of 21.2p’. He added that ‘the dilutive impact of the Friends Life deal is becoming evident and [there are] some forex hits’.
The ‘warnings’ were around normal earnings growth which is likely to be ‘in md-single digit’.
‘In addition the dividend growth is expected to moderate in the coming years. This compares to our forecast of c.15% per annum growth in earnings per shares for the next two years with a similar level of dividend growth attached,’ said Flanagan.
Cobham relying on defence market recovery
Defence and securities specialist Cobham (COB) should benefit from an improving defence market.
Liberum analyst Ben Bourne retained his ‘buy’ recommendation and reduced the target price from 330p to 270p. The shares fell 3.6% to 213p yesterday.
‘We cut our target price… following disappointing prelims and subsequent 15% cut to our full-year earnings per share,’ he said. ‘Elevated debt and a heavier H2 bias cause unease. Free cashflow/profit after tax was alarmingly low but looks like the trough. Improving defence markets, where Cobham harvests c.60% of revenue, should provide support as this year evolves, along with the 5% dividend per share yield.’
Profit growth expected at Devro
Sausage skin maker Devro (DVO) is set to benefit from emerging market growth and later on, capacity in China.
Investec analyst Nicola Mallard retained her ‘buy’ recommendation and target price of 360p on the shares, which fell 1.7% to 311p yesterday.
‘Devro is making good progress in positioning the business to better participate in emerging market growth,’ she said.
‘New capacity will come on stream later this year in China, with scope for future additions as and when required. Coupled with cost reductions building this year in the US, we believe the company looks set to enter a period of accelerated profit growth in full year 2016-18.’
Pru’s Asian focus could have knock-on for growth
Insurer Prudential’s (PRU) Asian business continues to set it apart from rivals, according to Deutsche Bank.
Analyst Oliver Steel retained his ‘hold’ recommendation and increased the target price from £15.65 to £16.20. The shares fell 2.1% to £13.36 yesterday.
‘Prudential’s Asian business continues to set it apart from peers. We may worry that it is becoming too Hong Kong-orientated, but the latest results show momentum here being maintained – indeed accelerating modestly in the Q4,’ he said.
‘In the other divisions, however, though the underlying results are not materially different from our expectations, the trend towards slowing profits growth is still evident whether at M&G from retail outflows, the UK as the group pulls away from annuities or the US where a naturally slowing net inflow rate could be knocked further if the Department of Labor proposals are implemented.
‘With less to differentiate itself in terms of growth, we retain our ‘hold’ recommendation.’
Whitbread upgraded as share price falls
Whitbread (WTB), owner of Costa Coffee and Premier Inn, has been upgraded after a share price fall.
Jefferies analyst Ian Rennardson upgraded his recommendation from ‘underperform’ to ‘hold’ but reduced the target price from £41.00 to £36.00. The shares, which are down 15% since the turn of the year, rose 1% to £37.40 yesterday.
‘With evidence of slower growth in Whitbread’s two main businesses we lower our earnings per share forecasts by 5-7% and our price target falls to £36.00, close to the current share price,’ he said.
‘We move to a “hold” following a c.35% fall in the share price, which we now believe may not fully reflect the potential spin-off of Costa Coffee.’
He said although investment and expansion was expensive for the group ‘hotel demand remains strong, the effects of the room sharing economy are not as big as expected, competition abates across its two main businesses and Costa Coffee [could be] spun-off’.