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The Expert View: Morrisons, LSE and Intertek
Our daily roundup of analyst commentary on shares, also including Tyman and Esure.
by Michelle McGagh on Mar 09, 2016 at 05:00
Morrisons gets past ‘margin trough’
Supermarket Morrisons (MRW) has got past its ‘margin trough’ and is on a better path.
Jefferies analyst James Grzinic retained his ‘buy’ recommendation and target price of 210p on the shares, which fell 3.3% to 202.5p yesterday.
‘Morrisons’ 50% rebound from the lows of three months ago may limit short-term upside,’ he said. ‘However, the upcoming finals should confirm that 2015/16 represented the margin trough.
‘Cash balances are building rapidly and Morrisons will have the embarrassment of choice in rewarding shareholders in due time. Morrisons still represents the best positioned stock in the UK grocery space, in our view.’
He added that ‘assuming a new policy for dividend per share cover of 2x, we calculate that 2015/16 excess cash balances of £400 million should grow to close to £1 billion by 2017/18. With only £400 million of debt redemptions over the period, Morrisons will have to start considering how to redeploy cash.’
Insurer Esure faces more pressure
Insurer Esure (ESUR) has warned of further pressure in the motor and household markets as it reports in-line 2015 results.
Shore Capital analyst Eamonn Flanagan reiterated his ‘sell’ recommendation but does not have a target price for the stock. The shares edged 0.2% lower to 262.9p yesterday.
‘Esure reported 2015 results which were broadly in line with our and the market’s expectations at the trading profit and underlying earnings level but yet again disappointed and confused regarding its dividend policy,’ he said.
‘A pay-out of 70% resulted in a dividend of 11.5p compared to our expectations of an 80% pay-out and a 13.1p dividend.
‘Although the group suggests that it has decided to retain capital to fund “profitable growth” [it doesn’t] really have much room for manoeuvre.’
Intertek’s new boss expected to ‘ramp up’ performance
A new chief executive at Intertek (ITRK) is a boost for the quality and safety service provider but the price is still too high as an entry point.
Deutsche Bank analyst Tom Sykes retained his ‘hold’ recommendation and increased his target price from £27.00 to £31.00. The shares fell 1.7% to £30.59 yesterday.
‘We rate the new chief executive [Andrew Lacroix] very highly and expect the company to perform well under his stewardship, however at 20x earnings we look for a better entry point,’ he said.
‘We have long felt that the key to long-term sustainable performance in a lower growth testing sector will come from improved operational management and a focus on cross-selling. As such we see Intertek’s strategy as completely the right one to follow. Now it is about implementation and in our view, the new chief executive will consistently ratchet up the operational performance of the business.’
Predator LSE becomes prey
The London Stock Exchange (LSE) has once again become prey after its own acquisition spree.
Numis analyst Jonathan Goslin retained his ‘hold’ recommendation and increased the target price from £24.50 to £27.00. The shares were broadly flat at £28.32 yesterday.
‘Having successfully completed its own acquisition spree in recent years, the LSE has once again become the target as the global exchange sector continues to consolidate,’ he said.
‘So far Deutsche Boerse has confirmed it is in detailed discussions with the group and Intercontinental Exchange has expressed an interest, but we would not be surprised if other firms like the Chicago Mercantile Exchange and Hong Kong Exchanges were also taking a very close look.
‘While we see the obvious benefits from such a deal – namely cost and revenue synergies – we remain mindful of the challenges that would need to be overcome for it to complete.’
Although Goslin upgraded the target price he maintained a ‘hold’, arguing ‘the shares are up with events and we are fully aware of the long list of failed M&A deals within the sector’.
Tyman acquisition to boost earnings per share
Tyman (TYMN), which supplier building products to the door and window industry, has acquired Italian hardware manufacturer Giesse.
Liberum analyst Charlie Campbell retained his ‘buy’ recommendation and target price of 310p. The shares edged 0.6% higher to 283.5p yesterday.
‘Tyman has announced the acquisition of Giesse, an Italian based hardware manufacturer. We expect the acquisition to be significantly earnings per share enhancing, of the order of 8-10%,’ he said.
‘Tyman’s full-year results beat by 5% at the profit before tax level as margin progress was stronger than expected. Management is confident of better growth in the US in 2016. We expect a good response to the Giesse acquisition and the earnings beat.’
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Look up the shares
- WM Morrison Supermarkets PLC (MRW.L)
- London Stock Exchange Group PLC (LSE.L)
- Intertek Group PLC (ITRK.L)
- Tyman PLC (TYMN.L)
- esure Group PLC (ESUR.L)