The Expert View: Bellway, Balfour Beatty and Beazley

Shore Capital: don’t be fooled, Bellway isn’t cheap

Half-year results from Bellway (BWY) are only in line and Shore Capital does not agree with the belief that housebuilders are cheap after the Wall Street wobble.

Analyst Robin Hardy retained his ‘hold’ recommendation on the stock after a first-half update that ‘looks to be very positive [but] it is actually very close to what was expected’.

‘The sector has been de-rating since November but there appears to be a view that in the Wall Street-led wobble at the start of the week the house builders have become cheap - we disagree,’ he said.

‘We believe that as the evidence that weak pricing is set to gnaw away at sector margins, the de-rating will continue. The strength and over-correction we saw, we would see as a trading opportunity to continue lowering weightings in the sector.’

The shares fell 4.9% to £31.51 yesterday.

Liberum: Balfour Beatty to benefit from Carillion collapse

The collapse of Carillion is an opportunity for its competitors like Balfour Beatty (BBY) to take market share, says Liberum.

Analyst Joe Brent retained his ‘buy’ recommendation and target price of 350p on the stock after Carillion released a business plan that focused on an unchanged management team delivering ‘above industry average margins and cash conversion’.

‘However, it sheds interesting light on the opportunity of competitors, like Balfour Beatty, to take market share and specifically on [the] Aberdeen relief road [project], where Balfour has moved from being a 33% partner to a 50% partner,’ he said.

‘Balfour is cited by Carillion as a key competitor in several markets, including strategic roads, HS2, and civils. We would add to the list, rail, where Balfour already has a strong position.’

The shares were flat at 269.4p yesterday.

Beazley valuation looking full, says Peel Hunt

Specialist insurer Beazley (BEZ) has reported a ‘solid set’ of 2017 results but Peel Hunt says the valuation is looking too full.

Analyst Andreas van Embden retained his ‘reduce’ recommendation and target price of 380p on the shares, which jumped 5.3% to 559.5p yesterday.

‘An improving rate outlook, felt across the breadth of the portfolio, is delivering further growth opportunities for Beazley, which reported a solid set of 2017 results despite the active hurricane season,’ he said.

‘However, based on our numbers the return on tangible net asset value should move towards 15% in 2019 from 10%, which is not sufficient to justify a 2.5x 2018 tangible net asset value multiple with a low 2% yield unless we revert to a benign catastrophe year in 2018.’

Van Embden added that despite ‘an encouraging rate outlook and improving profitability’ he could not upgrade the stock.

DFS valuation too pessimistic, says Jefferies

The outlook for furniture store DFS (DFS) is looking more upbeat than expected by markets, says Jefferies.

Analyst Niraj Amin retained his ‘hold’ recommendation but reduced his target price from 240p to 210p. The shares were up 3.9% at 199.6p yesterday.

‘DFS has reported a less pressured than feared first-half 2018 update given gross sales of -3.5%,’ he said. ‘Given like-for-like momentum improving through the quarter, the outlook for DFS is more encouraging than current valuation presumes; notwithstanding this the wider market backdrop remains uncertain, hence we maintain our “hold”.’

Amin added the recent acquisition of Sofology and eight Multiyork stores ‘underline the group’s ability to act opportunistically in a tough market, and longer term we expect DFS to emerge as a stronger business’.

Hargreaves: currency the only problem at Compass

A trading update from Compass (CPG) has been positive but currency swings mean the world’s largest catering company has just missed out on analyst upgrades, says Hargreaves Lansdown.

The group reported organic growth of 6% in the first quarter and sales were up over 8%, with the US leading the charge. The shares jumped 5.1% to £15.10 yesterday on the news.

Steve Clayton, manager of the HL Select UK Growth Shares fund, holds a 3.5% position in Compass and said the company had driven efficiencies in sourcing, operations, and management.

‘The only negative news from Compass is their estimate of currency swings looking forward,’ he said. ‘Sterling has been recovering of late and with the large majority of its income earned abroad, this creates a drag on profits when reported back in to pounds.’

The group is estimating currency swings will hold profits back by £100 million and without this Clayton said ‘the underlying performance of the group would likely have seen analysts reaching for their pencils to upgrade numbers’.