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The Expert View: BP, Anglo American and Balfour Beatty

Our daily roundup of analyst commentary on shares, also including St Modwen Properties and OneSavings Bank.

by Michelle McGagh on Mar 17, 2017 at 05:00

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Key stats
Market capitalisation£89,591m
No. of shares out19,560m
No. of shares floating19,425m
No. of common shareholdersnot stated
No. of employees79800
Trading volume (10 day avg.)47m
Turnover150,599m USD
Profit before tax94m USD
Earnings per share0.00 USD
Cashflow per share0.64 USD
Cash per share0.99 USD

BP ‘meaningfully undervalued’, says Barclays

Barclays believes the next five years will be ‘transformative’ for undervalued BP (BP).

Analyst Lydia Rainforth retained her ‘overweight’ recommendation and target price of 625p on the stock, which was trading up 1.1%, or 5.2p, at 461p at the time of writing.

‘The coming five years should be transformative for BP. In the upstream (exploration and production), sector-leading volume growth ambitions of 5% to 2021 look achievable and combined with greater efficiency should yield much improved results,’ she said.

‘Yet it is the plans for the downstream that have the potential to deliver the biggest positive surprise to the market.’

She said the attraction in the investment case was ‘in the simplicity’.

‘If the dividend is sustainable, then the shares, which offer a 7% yield, remain meaningfully undervalued,’ said Rainforth.

Key stats
Market capitalisation£18,092m
No. of shares out1,402m
No. of shares floating1,306m
No. of common shareholdersnot stated
No. of employees80000
Trading volume (10 day avg.)7m
Turnover17,393m USD
Profit before tax1,297m USD
Earnings per share1.00 USD
Cashflow per share2.54 USD
Cash per share3.51 USD

Anglo American approach underlines mining recovery, says Jefferies

Volcan Investments’ plans to buy a £2 billion stake in Anglo American (AAL) shows the next stage of the mining sector recovery is under way, according to Jefferies.

Analyst Christopher LaFemina retained his ‘hold’ recommendation and target price of £14.00 on Anglo American after Anil Agarwal’s Volcan Investments announced plans to buy the stake in Anglo. He said this could take place over the next 15 days if necessary.

‘This equates to a 13% interest in Anglo,’ said LaFemina. ‘Volcan has said it does not intend to make an offer to acquire all of Anglo American and therefore cannot do so for at least six months, as per the UK Takeover Code. Agarwal is the chairman and founder of Vedanta, in which Volcan owns a 69.4% stake.’

He said the move by Volcan shows the recovery in mining has further to go.

‘Our expectation has been that the mining sector recovery would comprise three separate phases: phase one, which is mostly complete, was the balance sheet recap trade of 2016. Phase two, which is happening now, is the cashflow and capital returns phase. Phase three, which we have expected to start in 2018, is the growth and M&A phase. It is possible that phase three is beginning now,’ he said.

The shares were trading up 9.2%, or 109p, at £13.04 at the time of writing.

Key stats
Market capitalisation£1,873m
No. of shares out690m
No. of shares floating686m
No. of common shareholdersnot stated
No. of employees23123
Trading volume (10 day avg.)2m
Turnover£6,955m
Profit before tax£-206m
Earnings per share-30.07p
Cashflow per share-21.31p
Cash per share96.52p

Numis: Balfour Beatty offers upside

Engineering group Balfour Beatty (BALF) currently offers investors upside potential, according to Numis.

Analyst Howard Seymour retained Numis’s ‘add’ recommendation and target price of 320p on the stock, which was trading down 2.1%, or 6p, at 277p at the time of writing.

He was impressed by the ‘concrete targets’ set for the company’s service operations and ‘a more selective approach to investments crystallisation’. Seymour said both moves should be seen as a signs of ‘increased management confidence’. They also provide upside potential to services earnings and investments asset value.

Seymour is also positive about the move back to 'industry standard' margins over the next 24 months, now outlined by the chief executive as hard margin targets.

‘We see these targets as sensible, and expect a linear improvement over this period in UK construction and all other service divisions, so retain our profit expectations for services.

Key stats
Market capitalisation£996m
No. of shares out243m
No. of shares floating236m
No. of common shareholdersnot stated
No. of employees520
Trading volume (10 day avg.)m
Turnover£268m
Profit before tax£84m
Earnings per share34.48p
Cashflow per share35.15p
Cash per share0.15p

Peel Hunt puts OneSavings Bank target price under review

Peel Hunt has raised its forecasts for challenger bank OneSavings Bank (OSB) after it increased pre-tax profit by 29% to £137 million.

Analyst Anthony Da Costa retained his ‘buy’ recommendation but placed the 432p target price ‘under review’ following the above-consensus results.

‘Updated guidance will upgrade our 2017 forecasts by at least 10% supported by a strong pipeline, a benign credit environment and cheap funding,’ he said.

‘On our conservative forecasts the stock trades on 2.1x 2017 estimated net asset value or 10.7x 2017 estimated earnings.’

He is expecting upgrades to ‘increase the target price above 432p’.

Key stats
Market capitalisation£710m
No. of shares out222m
No. of shares floating178m
No. of common shareholdersnot stated
No. of employees345
Trading volume (10 day avg.)m
Turnover£288m
Profit before tax£53m
Earnings per share22.05p
Cashflow per share22.42p
Cash per share1.89p

Tap into St Modwen’s ‘significant discount’, says Liberum

Property developer St Modwen (SMP) continues to offer value, despite a recent hick-up concerning its plans to divest Nine Elms Square in London, says Liberum.

Analyst David Brockton retained his ‘buy’ recommendation and target price of 360p on the stock. It was trading flat at 318p at the time of writing.

‘A setback in the potential divestment of Nine Elms Square does not derail the investment case for St Modwen,’ he said.

‘However, if capital controls are the principal cause for this outturn, it could have wider negative inference across the UK commercial market. Irrespective, we believe St Modwen’s shares continue to offer opportunity: the group can generate value in a benign end-market for regional land values, it has self-help potential, a new chief executive and some form of value realisation at Nine Elms Square is still possible.’

Brockton added that the shares trade on a ‘significant discount’ to 2017 estimated price/net asset value of 0.65x versus 0.84x for the sector.

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  • Balfour Beatty PLC (BALF.L)
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  • Anglo American PLC (AAL.L)
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  • St. Modwen Properties PLC (SMP.L)
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  • BP PLC (BP.L)
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  • OneSavings Bank PLC (OSBO.L)
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