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The Expert View: BP, BT and Imperial Tobacco
Our daily roundup of analyst commentary on shares, also including Ocado and Land Securities.
by Michelle McGagh on Feb 03, 2016 at 05:00
BP’s ‘messy’ results not as bad as it looks
A ‘messy’ set of fourth quarter results from BP (BP) will affect the stock performance briefly but there is little change to the investment ‘thesis’ on the stock.
Jefferies analyst Jason Gammel retained his ‘hold’ recommendation and target price of 340p on the shares, which fell 5.8% to 345.7p yesterday.
‘Q4 results adjusted net income of $200 million was 73% below the consensus. Results were weak across the board with adjusted earnings of $500 million 67% light of expectations,’ he said. ‘However, the dividend is unchanged and gearing of 22% is in line with Jefferies estimates, albeit seemingly aided by working capital effects. At first glance there appears little to change our thesis on this stock.’
He added: ‘A messy set of results is not a complete surprise given the macro volatility over Q4 2015. However, underlying earnings look weak at first glance. We would expect the stock to underperform its peers [following the announcement].’
BT faces regulatory and competition risk
Telecommunications giant BT (BT) has had a good third quarter but there are mounting concerns around regulation and competition.
Deutsche Bank analyst Robert Grindle retained his ‘sell’ recommendation but increased the target price from 430p to 435p. The shares were broadly flat at 496p yesterday.
‘The company performed well in Q3 but regulatory and competitive risks are mounting and [pound] weakness, while not unhelpful for BT, is more beneficial to other [telecommunications companies],’ he said.
‘Q3 saw a healthy beat on revenues but one-offs and price timing benefits lapse in Q4…We cut our EE earnings expectations by £40 million annually to reflect ongoing brand payments and keep EE capital expenditure above trend due to the emergency services contract.’
He added that the Ofcom market review and the O2 merger with Three posed additional risks.
Imperial Tobacco predicted to outshine peers in 2016
Imperial Tobacco (IMT) is expected to deliver the highest earnings per share and dividend growth in its peer group this year.
Berenberg analyst Jonathan Leinster reinitiated coverage of the stock with a ‘buy’ recommendation and target price of £42.30 on the shares, which dipped 19p to £37.84 yesterday.
‘We estimate 15% adjusted earnings per share growth and 10% dividend growth in full year 2016, the highest among its peer group,’ he said.
‘This is driven by 10% earnings per share accretion due to the acquisition of US cigarette brands. The performance of the US business is also likely to dominate sentiment towards the stock as there remain significant concerns about whether the deal will prove to be growth dilutive in the medium to long term. Were Imperial Tobacco to maintain or grow share in the US market, then this would be a significant positive to sentiment towards the stock.’
Land Securities will weather a property slowdown
Real estate investment trust (Reit) Land Securities (LAND) is expecting a quieter investment market in 2016 but the business is well placed to survive any correction.
Liberum analyst David Brockton retained his ‘hold’ recommendation and target price of £11.58 on the shares, which fell 1.5% to £10.89 yesterday.
‘A sales desk meeting with Land Securities reiterated confidence in the resilience of their portfolio, but expressed caution as to the depth of occupier demand and signalled signs of a quieter investment market through early 2016,’ he said.
‘With low financial leverage and the tail-end of a significant development pipeline nearing completion, the business is extremely well positioned to outperform out of any correction. We nevertheless retain our cautious stance.
‘A 30% net asset value discount may increasingly seem attractive but this is still struck on relatively expensive, cyclical asset values with rising near-term risks.’
Ocado still working on international deal
The failure of online food retailer Ocado (OCDO) to secure an international deal last year has not dented analyst enthusiasm for the stock.
Numis analyst Andrew Wade retained his ‘buy’ recommendation and target price of 500p following full year 2015 results. The shares fell 6.9% to 245.2p yesterday.
‘Ocado has posted full-year 2015 earnings of £81.5 million, a touch ahead of expectations, and reiterated its confidence in signing multiple international deals in the medium term,’ he said.
‘Management notes that while it did not sign an agreement in 2015 as targeted, “discussions with multiple potential international partners…continue”. Management’s confidence in signing a deal “remains high”… we assume from this wording that there have been no material behind-the-scenes changes, and that discussions are in relatively advanced stages with a number of parties, albeit management is, understandably, taking a more cautious view on timing.’
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- BP PLC (BP.L)
- Ocado Group PLC (OCDO.L)
- Land Securities Group PLC (LAND.L)
- BT Group PLC (BT.L)
- Imperial Tobacco Group PLC (IMT.L)