The Expert View: Capita, Reckitt Benckiser and Rolls-Royce

Our daily round-up of analyst recommendations and commentary, featuring Capita, Reckitt Benckiser, Rolls-Royce, AVEVA Group and Sthree.

Key stats
Market capitalisation	£5,150m
No. of shares out	654m
No. of shares floating	647m
No. of common shareholders	not stated
No. of employees	46500
Trading volume (10 day avg.)	1m
Turnover	£2,930m
Profit before tax	£238m
Earnings per share	39.07p
Cashflow per share	61.75p
Cash per share	12.15p

*Correct as at 28 Jan 2013

Capita's running out of steam, Canaccord warns

'Capita’s best days for growth are behind it', according to Canaccord analyst Julian Cater, who has downgraded the shares (CPI.L) from 'hold' to 'sell'.

Although a good recent track record in contract wins has seen a 5% rise in organic sales in the year so far, Cater doesn't expect this to last.

'A number of the coalition government’s procurement initiatives (move to open source computing, enthusiasm for mutuals) look likely to limit medium-term growth rates, and the reduction in the growth rates used to test acquired goodwill in the 2011 annual report suggests to us that management also recognises that Capita’s best days for growth are behind it,' he warned.

The company's record in acquisitions is 'mixed', he added, while the general insurance and property divisions have been disappointing for the past few years.

Shares in the group closed at 781p on Monday, down 12.7p or 1.6%.

Key stats
Market capitalisation	£30,534m
No. of shares out	720m
No. of shares floating	636m
No. of common shareholders	not stated
No. of employees	37800
Trading volume (10 day avg.)	1m
Turnover	£9,485m
Profit before tax	£1,745m
Earnings per share	237.15p
Cashflow per share	259.71p
Cash per share	80.01p

*Correct as at 28 Jan 2013

Reckitt poised for ‘good finish to the year’

Analysts at JPMorgan Cazenove have raised their price target for Reckitt Benckiser (RB.L) shares, from 3,500p to 4,300p, in expectation of ‘a good finish to the year driven by Health’.

The consumer goods firm, which produces brands such as Nurofen and Gaviscon, ‘should deliver a pleasing acceleration in top line in Q412 to 6%, leading to 5% LFL for the year beating its guidance of 3-4%,’ said the analysts, who rate the shares as ‘neutral’.

After a 29% share price rise in 2012, ‘the stock appears fairly valued, in line with peers, though top line beat in Q4 & Q1 could prove supportive,’ they say. Reckitt Benckiser shares moved 1% higher on Monday to £42.38.

Key stats
Market capitalisation	£17,651m
No. of shares out	1,872m
No. of shares floating	1,855m
No. of common shareholders	not stated
No. of employees	42300
Trading volume (10 day avg.)	4m
Turnover	£11,124m
Profit before tax	£850m
Earnings per share	45.33p
Cashflow per share	66.99p
Cash per share	70.56p

*Correct as at 28 Jan 2013

‘Little upside’ for Rolls-Royce

Investors in Rolls-Royce (RR.L) shares can expect ‘little further upside’, say analysts at Societe Generale in a review of the aerospace and defence sector.

‘We maintain a Sell on Rolls-Royce where we see little further upside from current levels given a rich valuation and the uncertainty created by the SFO bribery investigation,’ they say.

Cobham is also now a ‘sell’ for the French bank, downgraded from a ‘hold’.

French firm Safran and pan-European aerospace and defence company EADS however are both buys, Societe Generale say.

Rolls Royce shares dropped on Monday, ending the day down 0.2% to 944p.

Key stats
Market capitalisation	£1,491m
No. of shares out	68m
No. of shares floating	67m
No. of common shareholders	not stated
No. of employees	1055
Trading volume (10 day avg.)	0m
Turnover	£196m
Profit before tax	£40m
Earnings per share	58.73p
Cashflow per share	66.97p
Cash per share	72.01p

*Correct as at 28 Jan 2013

Merchant Securities downgrades AVEVA Group to 'sell'

Merchant Securities analyst Roger Phillips has downgraded engineering software business AVEVA Group (AVV.L) from 'hold' to 'sell', saying the lack of detail about expectations for the year in the latest trading update is a bad sign.

'At first glance, AVEVA’s Q3 interim management statement (IMS) reads ordinarily and relatively positively overall, but it is noticeable that the IMS does not contain any guidance on the outcome for the full year,' he said.

'This is the first time that this language has not been included in an AVEVA Q3 IMS, or alternatively a comment that the board anticipates meeting expectations for the full year.'

The shares are starting to look overstretched, he added, and he expects them to fall once consensus estimates for the full year are trimmed.

Shares in the group closed at £21.91 on Monday, down 41p or 1.8%.

Key stats
Market capitalisation	£414m
No. of shares out	121m
No. of shares floating	86m
No. of common shareholders	not stated
No. of employees	2300
Trading volume (10 day avg.)	0m
Turnover	£542m
Profit before tax	£20m
Earnings per share	16.36p
Cashflow per share	22.54p
Cash per share	46.41p

*Correct as at 28 Jan 2013

Seymour Pierce downgrades Sthree to 'sell'

Recruitment business SThree (STHR.L) faces an uncertain future, Seymour Pierce analyst Kevin Lapwood has warned, spurring him to downgrade the shares from 'hold' to 'sell'.

Over 2012 net income improved 5% to £205.3 million, hitting expectations. However, over the last quarter of the year net fee income growth of 2% represented a downward trend, which has Lapwood worried.

'We remain cautious over the outlook: the permanent deal pipeline at the period end was 4% down year on year (permanent accounts for 50% of the business),' he said.

The shares trade on a prospective price-to-earnings ratio of 21.7x Lapwood's 2013 earnings estimate: a premium to the sector average of 17.2x.

Shares in the group closed at 344p on Monday, down 0.8p or 0.2%.