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The Expert View: Old Mutual, Travis Perkins and Admiral
Our daily roundup of analyst commentary on shares, also including Hunting and Abcam.
by Michelle McGagh on Mar 08, 2016 at 05:00
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Private equity firms eye Old Mutual
Shore Capital believes there is a ‘distinct possibility’ of Old Mutual (OML) announcing a demerger or disposal of the wealth arm.
Shore Capital analyst Eamonn Flanagan reiterated his ‘hold’ recommendation but does not have a target price on the stock following rumours that the group was to be split up. The shares jumped 6.1% to 190.7p yesterday.
‘We note the media speculation…regarding the future of Old Mutual Wealth, with a number of private equity firms rumoured to be interested in bidding for it,’ he said. ‘In addition, we note [yesterday’s] announcement from the company that the results of its strategic review will be announced with its results on Friday.
‘We believe that such a disposal or demerger of Old Mutual Wealth is a distinct possibility. The interaction with the South African life and banking operations is pretty limited and, indeed, probably introduces the conglomerate discount that the stock has traded on for quite a while. In addition, we remind readers of the group’s previous record of such radical moves, such as the sale of Skandia’s Scandinavian business a few years ago, and the subsequent return of capital.’
Abcam results show strengthening position
Strong sales growth at antibody supplier Abcam (ABC) shows the company has strengthened its competitive edge.
Peel Hunt analyst Charles Hall retained his ‘buy’ recommendation but put the target price ‘under review following first-half results. The shares tumbled 8.1% to 627.5p yesterday.
‘Abcam delivered impressive sales growth in H1 of 17.2% in constant currency, which is ahead of company guidance and our forecast,’ he said. ‘Abcam continues to grow at 3-4x the rate in the market. The shares have continued to perform well and have gone through our target price.
‘Abcam continues to strengthen its competitive position, which is demonstrated with the strong sales growth. The step-up in investment in product development, e-commerce, marketing and infrastructure will hold back profit growth in the short term, but the strong top-line performance should reassure that the company will return to healthy double-digit earnings growth.’
He added that acquisitions ‘should continue to be a key feature of the growth story and the cash on the balance sheet provides significant firepower’.
Admiral reports ‘striking’ UK growth
Insurer Admiral (ADM) has reported stronger than expected UK growth, which analysts expect to continue.
Numis analyst Nick Johnson retained his ‘add’ recommendation and increased the target price from £20.00 to £21.45. The shares edged 0.9% higher to £19.62 yesterday.
‘Admiral’s full-year 2015 results showed stronger than expected growth in UK motor customers and striking growth in early-stage UK home insurance business,’ he said.
‘We think both segments will achieve continued good growth, driven by Admiral’s proven margin advantage, ongoing rate rises in UK motor and start of cross-sell initiatives in UK home. Our earnings per share forecasts increase by 8% for full-year 2016 and full-year 2017. We remain positive on the shares based on value creation from UK growth and longer-term potential for the international businesses.’
Hunting downgraded: market ignoring US slowdown risks
Oil industry energy provider Hunting (HTG) has been downgraded following weak 2015 results.
Liberum analyst Andrew Whittock downgraded his recommendation from ‘hold’ to ‘sell’ with a 310p target price. The shares fell 4.6% to 410.3p yesterday.
‘The 2015 results were as weak as expected and the dividend maintained,’ he said. ‘Cash flow looked good and net debt is a manageable $110 million.
‘US markets are challenging and no guidance for 2016 was provided. The balance sheet offers flexibility for new ventures but revenues and margins in H2 2015 were weak and may have deteriorated. We reflect these in our forecasts and our fair valuation remains around 310p.
‘The market is ignoring the risk of a prolonged US slowdown.’
Travis Perkins on track in the long term
Builders’ merchants Travis Perkins (TPK) is expected to reward investors in the long term.
Jefferies analyst Sam Cullen retained his ‘buy’ recommendation but reduced the target price from £24.50 to £23.90. The shares rose 12p to £17.95 yesterday.
‘With markets recovering post the H2 slowdown last year and the group delivering on its longer term strategy, Travis remains our top pick in the distribution space,’ he said.
‘We continue to believe the investment in the supply chain and e-commerce will pay long term dividends, helping the group grow ahead of the underlying market.’
He added the longer term strategy was on track despite small changes to estimates.
‘Slower growth in the final two months of 2015 lowers the base for 2016 and beyond and a higher interest charge and greater number of shares in issue further dilutes earnings,’ said Cullen.
‘The reduced price target is a reflection of these changes and a higher debt figure, a results of freehold property purchases. However, the longer term strategy remains on track. Growth is greatest in those verticals most exposed to e-commerce and omni-channel, giving us confidence in the current direction of travel.’
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Look up the shares
- Old Mutual PLC (OML.L)
- Abcam PLC (ABCA.L)
- Hunting PLC (HTG.L)
- Admiral Group PLC (ADML.L)
- Travis Perkins PLC (TPK.L)