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The Expert View: Kingfisher, Crest Nicholson and Drax
Our daily roundup of analyst commentary on shares, also including Card Factory and PZ Cussons.
by Michelle McGagh on Jan 27, 2016 at 05:00
Analysts dismiss Kingfisher transformation plan
Home improvement retailer and B&Q owner Kingfisher (KGF) has set out ambitious plans but there is scepticism about how realistic they are.
Haitong Research analyst Tony Shiret retained his ‘sell’ recommendation and target price of 290p on the shares, which were trading at 317.4p yesterday, down 8.1% since Monday’s announcement of the plans.
‘Kingfisher has downgraded market consensus estimates for 2016/17 and 2017/18 by around 4% and 8% and promised £500 million of extra profit before tax against a currently likely, but vague, consensus estimate of c.£900 million for 2020/21 – so a 55% uplift over five years equivalent to extra growth of c.9% per annum,’ he said, ‘The issue here is the credibility of the plan and the market’s view of the likelihood of successful execution.
Recent examples of turnaround have been uninspiring… and tend to reinforce the view that reinvesting non-food retailers is complicated and takes a long time.’
He added: ‘We remain sellers because we do not believe that Kingfisher will deliver this plan and its valuation now looks to embed transformation benefits to some degree.’
Card Factory delivers good news
Long-term earnings growth is expected at card retailer Card Factory (CARDC) that will allow it to make additional cash returns.
Liberum analyst Adam Tomlinson retained his ‘buy’ recommendation and target price of 450p on the shares, which were flat at 348.7p yesterday.
‘Card Factory has reported a strong update for the 11 months to 31 December, with sales tracking slightly ahead of our full-year expectations,’ he said.
‘Management is guiding to full-year profits in line with expectations. The store roll-out target for the year has already been hit and like-for-like performance remains robust.
‘Online, while a smaller part of the group, has continued to grow very strongly. We expect these components to continue delivering high quality earnings growth over the long-term. Card Factory continues to be highly cash generative, which we expect to support frequent additional cash returns. Strong “buy”.’
Crest Nicholson building up growth
As one of the smaller housebuilders it will be easier for Crest Nicholson (CRST) to deliver growth than some of its larger peers.
Shore Capital analyst Robin Hardy retained his ‘buy’ recommendation but does not have a target price for the stock. The shares jumped 5.6% to 541p yesterday following full-year 2015 preliminary results that showed profit before tax was £154 million against an expected £151 million.
‘As a smaller business we see growth as being easier to deliver than we do for the large, national builders,’ he said.
‘A core part of this expansion is the new operation to sell bespoke product to the institutional private rentals sector, and Crest remains the only business where this is a core rather than ad hoc source of sales.’
He added: ‘Overall, still a very solid growth story with all the key elements in place to see that additional volume delivered across the next four financial years. There is plenty of land in the pipeline and the market environment remains supportive. This remains an attractive stock with strong growth ambitions but an undemanding rating.’
EU looks at Drax biomass contract
The European Commission is looking into clean energy provider Drax (DRX) over its biomass conversion contract.
Jefferies analyst Peter Atherton retained his ‘hold’ recommendation and target price of 210p on the shares, which rose 3.6% to 235p yesterday.
‘The European Commission has published details of the formal investigation into the proposed contracts for difference contract for Drax’s biomass conversion that was announced on 5 January,’ he said.
‘The EU Commission confirms that it has two concerns over this project; first, the “commission doubts that the aid is limited to the minimum necessary”, and second, “that the distortions of competition on upstream biomass market are not too significant”.’
Despite the concerns, Atherton believes the ‘commission will approve the contracts for difference arrangement following its investigation’.
PZ Cussons keeps an eye on Africa
Personal healthcare business PZ Cussons (PZC) is successfully fighting headwinds thanks to diversification in the company.
Investec analyst Nicola Mallard retained her ‘buy’ recommendation but reduced the target price from 327p to 312p. The shares fell 8.9% to 249.3p yesterday.
‘Given the challenges, PZ Cussons has produced a solid H1 result which shows that the diversification in recent years into beauty and food is helping to counter the volatility from emerging markets,’ she said.
‘The key risk to the immediate outlook remains a further devaluation of the [Nigerian currency] naira which would generate further margin attrition in this region. We make no changes to forecasts, but remain watchful of the situation.’
Mallard added that the group ‘has solid businesses in Asia and Europe which should help to absorb some of the potential volatility from [the Nigerian] market’.
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Look up the shares
- Kingfisher PLC (KGF.L)
- Crest Nicholson Holdings PLC (CRST.L)
- Drax Group PLC (DRX.L)
- Card Factory PLC (CARDC.L)
- PZ Cussons PLC (PZC.L)