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The Expert View: Morrisons, Jupiter and BAE Systems
Our daily roundup of analyst commentary on shares, also including ITV and Bunzl.
by Michelle McGagh on Mar 01, 2016 at 05:00
Jefferies salutes Morrisons’ Amazon adventure
Jefferies is cheered by Morrisons’ (MRW) distribution deal with e-commerce giant Amazon, proclaiming it evidence of ‘tangible progress on delivering growth opportunities in an imaginative, capital light manner’.
The deal marks an expansion of Amazon’s ‘Pantry’ service which it launched last year. It will give its Prime Now and Pantry customers access to the food products in Morrisons stores.
Jefferies analyst James Grzinic said the deal ‘confirms the group’s focus on leveraging the existing asset base harder by driving incremental volumes in a capital light manner’.
He added that Morrisons’ limited presence in London, particularly online where it accounts for just 2% of internet food sales, ‘makes Amazon an attractive partner in the UK’.
‘We note the longer-term benefits from a growing number of third party supply contracts on the group’s growth prospects, at a time when ongoing price deflation and store closures are capping retail sales growth,’ he said.
‘In time, the positive leverage could prove significant, as the business has the flexibility to increase internal production runs considerably.’
Grzinic rates Morrisons a ‘buy’ with a 210p price target on the shares, which rose 5.8% to 198.7p yesterday.
Barclays fears for BAE dividends
Barclays is worried about the prospects for dividends at BAE Systems (BAES) given fewer orders for the defence contractor.
Analyst Phil Buller rates the company an ‘underweight’ with a 410p target price on the shares, which were flat at 510p yesterday.
‘Our principal concerns over the sustainability of the current capital allocation policy and lack of orders dragging on future growth have not subsided following the full-year results,’ he said.
‘We see the £700 million annual dividend servicing cost as burdensome compared with the £100 million of internally funded research and development and -£100 million of net capital expenditure, given the £400 million increase to the defined net debt position in 2015,’ he added.
With debt set to rise by another £400 million in 2016, Buller said there was ‘great pressure on cash / capital allocation while order performance remains weak, making it difficult to grow out of this challenge with immunity to the dividend.’
Berenberg stays bearish on Bunzl
Berenberg hasn’t seen anything in Bunzl’s (BNZL) full-year results to shift it from its ‘sell’ rating on the outsourcing company.
Analyst Simon Mezzanotte has a £14.40 target price on the shares, which edged 8p lower to £19.27 yesterday.
‘Bunzl’s full-year 2015 results were a touch ahead of expectations at the operating level,’ said Mezzanotte. ‘The company announced three small acquisitions that add c.1% to the top line on an annualised basis. The outlook is for “continued growth in 2016”.
‘In our view these our OK numbers from Bunzl, but with the stock trading on 20 times full-year 2016 earnings per share estimates we continue to believe there is much better value elsewhere in the sector.’
Numis happy to ‘add’ to ITV
Numis is sticking with its ‘add’ recommendation on shares in ITV (ITV) ahead of the broadcaster’s full-year results tomorrow.
Analyst Paul Richards has a 300p target price on the shares, which fell 1.6% to 248p yesterday, and is forecasting earnings per share of 16p, just below consensus expectations of 16.1p.
‘This is predicated on net annualised return growth of 5.5%, consistent with none-month guidance for “at least 5%”,’ he said.
‘We expect a strong contribution from ITV Studios with robust organic growth supplemented by a first-time contribution from Talpa [the production company bought last year].’
Shore flags Jupiter’s discount first
Shore Capital has flagged fund group Jupiter’s (JUP) deal with online stock broker Hargreaves Lansdown over its new Asian Income fund, arguing it shows the power wielded by fund platforms.
Hargreaves Lansdown is offering the fund, which launches tomorrow, as one of its Wealth 150+ list of discounted funds, and has negotiated a 0.69% ongoing charge, versus the 0.98% norm.
‘The reason for flagging it is because, to our knowledge, this is the first Jupiter retail fund to offer such a discount, with the company previously having resisted differential pricing,’ said Shore Capital analyst Paul McGinnis.
‘This highlights one of our thematic reasons for applying a discount rating to Jupiter, its high exposure to a UK retail market where we see the balance of power firmly with the platforms, with Hargreaves Lansdown dominating the direct-to-consumer platform space and a similar situation likely to arise in the adviser platform market after a necessary period of consolidation.’
McGinnis rates Jupiter a ‘sell’. The shares fell 1% to 401.1p yesterday.
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Look up the shares
- WM Morrison Supermarkets PLC (MRW.L)
- ITV PLC (ITV.L)
- Jupiter Fund Management PLC (JUP.L)
- BAE Systems PLC (BAES.L)
- Bunzl PLC (BNZL.L)