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The Expert View: Meggitt, RSA and Wolseley
Our daily roundup of analyst commentary on shares, also including Lamprell and Polar Capital.
on Mar 30, 2016 at 05:00
Meggitt still cheap, don’t ignore
Engineer Meggitt (MGG) is still too cheap to ignore, according to Barclays analyst Phil Buller.
Buller retained his ‘overweight’ recommendation and raised the target price from 420p to 475p. The shares were broadly flat at 394.9p yesterday.
‘When we published [the note] “too cheap to ignore back” in November, we were flagging a value call at a time when the shares were out of favour, trading at just c.11x full year 2016 price/earnings... following the Q3 warning,’ he said.
‘We have since seen a solid set of full-year 2015 results with a strong cash beat and a balanced full-year 2016 guide. We look to an investor day on 19 April where we hope confidence will be further restored. We maintain there is long-term structural growth in the business model and our discounted cashflow implies a higher price target… but we too are keen to see a few more clean quarters.’
Lamprell have too many rigs and not enough contracts
Liberum analysts are waiting for the environment to improve for oil rig construction business Lamprell (LAM).
Liberum analyst Andrew Whittock retained his ‘buy’ recommendation but reduced his target price from 170p to 135p.
The shares fell 4.2% to 86p yesterday.
‘There are too many jackups [rigs] looking for work. Delays to approval of offshore projects are postponing the award by international oil companies of contracts,’ he said.
Whittock said Lamprells ‘jackup fleet has added capacity as new builds entered the market as demand fell’.
He added: ‘Both factors negatively impact the outlook for Lamprell’s order book. We have extended our cautious stance to 2016/17 and our new target price looks more realistic.’
Polar Capital downgraded on tough start to the year
Asset manager Polar Capital (POLR) has been downgraded following a challenging start to the year.
Peel Hunt analyst Stuart Duncan downgraded his recommendation from ‘buy’ to ‘add’ and reduced the target price from 465p to 395p. The shares fell 1.3% to 378.9p yesterday.
‘We have reviewed the factsheets for Polar’s fund range, which highlight an extremely difficult start to the year in terms of both performance and fund flows,’ he said.
‘Although the previous quarter had seen a return to inflows, market volatility has since had a pronounced impact with very few funds delivering positive performance in either January or February. Unfortunately this is especially pronounced in the key Japan fund, which has had a very poor start to the year.’
Duncan has reduced profit before tax and earnings forecasts by 24% ‘with the bulk of the reduction due to lower management fee earnings assumptions’.
‘Although there is some way to go, these forecasts are a more conservative starting point for the year. As always, there is some degree of sensitivity to performance fee earnings – we have modestly reduced these but the potential remains for these to be materially higher or lower by the key 31 December calculation date,’ he said.
RSA a safe bet with ‘some opportunity’
RSA (RSA) has set ambitious new targets for its margins after Zurich pulled out of a bid for the insurer.
Deutsche Bank analyst Oliver Steel retained his ‘hold’ recommendation and upped his target price to 515p from 450p.
The shares rose 1.2% to 472.7p yesterday.
‘The aborted offer from Zurich last year appears to have galvanised RSA’s profit improvement initiatives, and management has now set ambitious new targets to deliver margins in line with the best of its peers in its main markets,’ he said.
‘We think a good deal of this is achievable, and our forecasts for 2018 estimates are c.30% into the new target ranges, giving a price/earnings ratio in 2018 of 9.7x. Against this, we think continued balance sheet restructuring limits the dividend-paying ability for the next two to three years, leaving the yield trailing most of its peers even by 2018. In short, we see RSA as a relatively safe place while markets are volatile, with some opportunity, but we’d prefer a cheaper entry point than here.’
Wolseley: US returns to growth but UK lags
Plumbing specialist Wolseley (WOS) has seen a pick-up in US trading but conditions in the UK and Europe weigh.
Berenberg analyst Michael Watts retained his ‘buy’ recommendation and increased the target price from £41.00 to £43.00. The shares rose 15p to £38.98 yesterday.
‘Wolseley’s interim results were broadly as expected but we are encouraged by a pick-up in US growth,’ he said.
‘Ahead of interim results, we forecast that management would miss its group organic sales growth guidance below our 3.1% expectation. But this was more than offset by the encouraging pick-up in US growth following the November 2015 low point in Q2. The only disappointment is that UK trading conditions remain challenging and the European business continues to act as a drag on group sales growth.’
He added that his US expectations had been ‘pushed higher’ but ‘we generally lower our UK and European forecasts, results in broadly unchanged full year 2016 forecast’.
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Look up the shares
- Meggitt PLC (MGGT.L)
- Wolseley PLC (WOS.L)
- Lamprell PLC (LAM.L)
- RSA Insurance Group PLC (RSA.L)
- Polar Capital Holdings PLC (POLR.L)