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The Expert View: Game Digital, Balfour Beatty and DFS
Our daily roundup of analyst commentary on shares, also including Phoenix and Spire Healthcare.
by Michelle McGagh on Mar 24, 2016 at 05:00
Game: short-term cost will provide long-term boost
Investment by computer games and electronics retailer Game Digital (GMDG) will lower forecasts in the short-term but could provide a long-term profit boost.
Liberum analyst Tom Gadsby retained his ‘hold’ recommendation and target price of 120p on the stock, as the retailer slashed its interim dividend to 1.67p, down from 7.35p last year, when it paid out 29.4p in total, including a 14.7p special dividend. The shares fell 6.1% to 118.8p yesterday.
‘Game has seen an improvement in sales trends since the end of December,’ he said. ‘[First-half earnings] of £33 million is ahead of January’s guided figure of £30 million. The dividend has been rebased with 5p indicated for the full year.
‘The company is in the process of renewing its short-term financing arrangements to provide greater flexibility and fund an increase in stock to support anticipated demand in growing categories such as Gametronics – preowned phones and tablets. Game closed H1 with net cash of £120 million. Investment in the opportunities at multiplay reduce outer year forecasts but could unlock long-term profits.’
Balfour Beatty best placed for profit recovery
Growth potential at Balfour Beatty (BALF) coupled with a rising portfolio value means the construction company has the strongest profit profile in the sector.
Numis analyst Howard Seymour retained his ‘add’ recommendation and target price of 294p on the shares, which rose 1.3% to 251.9p yesterday.
‘We remain convinced of the growth potential of the investments business in value terms, and expect disposal profits to reduce over the coming years which will improve the underlying portfolio value,’ he said.
‘Services recovery is clearly the major driver of the shares, however. 2015 services losses reflected the acceleration of management actions to eliminate legacy issues in our view, and this coupled with existing tangible cost and cashflow benefits will progressively provide Balfour with the strongest profit recovery profile in the sector.’
DFS is good value despite outlook concerns
Brexit concerns could hit furniture retailer DFS (DFSD) as consumers hold back on splashing the cash but the stock is still undervalued.
Jefferies analyst Caroline Gulliver retained her ‘buy’ recommendation and target price of 365p on the shares, which fell 4.6% to 310p yesterday.
‘DFS has delivered a strong first half with earnings up 12.3% and cashflow up 7.1%,’ she said, adding that ‘margin expansion and the growth strategy is on track’.
‘While DFS has had a good first half, the second does typically contribute over 70% to full-year earnings and given the uncertainty around whether the UK will vote to stay in the EU, it is possible that consumers will rein back spend on big-ticket items like sofas,’ said Gulliver.
‘DFS’ stock has held up better than most during the market volatility, yet still only trades on c.11x 2017 earnings per share forecast. Despite the macro uncertainty, we see this as good value and recommend buying.’
Phoenix prospects are good but it needs to secure a deal
Income prospects at closed book insurer Phoenix (PHNX) but analysts warn it needs to ‘consummate a deal’ soon.
Shore Capital analyst Eamonn Flanagan reiterated his ‘hold’ recommendation but does not have a target price on the shares, which rose 2.1% to 937.5p yesterday.
‘Phoenix reports a resilient set of results for 2015 with the cash, dividend and the market consistent embedded value broadly as we had expected and as per consensus but the operating profits well ahead due to some one-off features,’ he said.
‘The income attractions remain considerable and robust but it really needs to consummate a deal in the near term so as to “oil the wheels” internally, deliver “proof of delivery” for the market and enhance the market consistent embedded value. Hopefully, now with Solvency II out of the way, the company can move forward on some deals.’
Spire has momentum on its side
Spire Healthcare Group (SPI) has had a tough year but is now more stable and can focus on the future.
Berenberg analyst Graham Doyle retained his ‘buy’ recommendation and target price of 390p on the shares, which rose 1.8% to 358.3p yesterday.
‘We believe Spire’s management has restored stability to the business following a challenging 12 months, which was confirmed by last week’s in line full-year 2015 results,’ he said.
‘We now expect investor attention to shift to the longer-term growth story, particularly with the company set to host its first ever capital markets day on 5 April. With momentum on its side and earnings growth set to accelerate, in our view, we retain our “buy” rating and our 390p price target.’
Doyle added that the ‘investment fundamentals are attractive at Spire with it capable of delivering a 12% adjusted earnings per share compound annual growth rate for 2016-20’.
‘Added to this, sentiment is improving after its latest update and we expect momentum to build through 2016,’ he said.
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Look up the shares
- Game Digital PLC (GMDG.L)
- DFS Furniture PLC (DFSD.L)
- Balfour Beatty PLC (BALF.L)
- Phoenix Group Holdings (PHNX.L)
- Spire Healthcare Group PLC (SPI.L)