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The Expert View: Pearson, Man Group and Brammer

Our daily round-up of analyst recommendations and commentary, featuring Synectics and Chariot Oil & Gas.

by Harry Brooks on Oct 29, 2012 at 05:01

Our daily round-up of analyst recommendations and commentary, featuring Pearson, Man Group, Brammer, Synectics and Chariot Oil & Gas.

Key stats
Market capitalisation£10,069m
No. of shares out816m
No. of shares floating797m
No. of common shareholdersnot stated
No. of employees41521
Trading volume (10 day avg.)2m
Turnover£5,862m
Profit before tax£957m
Earnings per share119.34p
Cashflow per share151.27p
Cash per share172.04p

*Correct as at 26 Oct 2012

Investec welcomes possible Penguin merger at Pearson

Steve Liechti, analyst at Investec, has cautiously welcomed news that publishing group Pearson (PSON.L) is in talks to merge its Penguin publishing business with Random House.

Although Liechti said the long-awaited merger, which if successful would create the world's biggest book publisher, could offer some savings, he said the deal wouldn't be a game-changer in itself.

'While we see some earnings per share upside via near-term merger/cost synergies in a pressured top line business, this does not imply cash returns to shareholders or re-investment in long-term growth education assets,' he said, reiterating his 'hold' recommendation on the shares.

However, the analyst said this apparent evidence of Pearson's willingness to slaughter some ‘sacred cows’ could offer real upside if it means selling the valuable FT Group could finally be on the cards.

Chief executive Dame Marjorie Scardino - who previously said the FT would only be sold 'over my dead body' - announced that she is to leave Pearson after 15 years just a few weeks ago, to be replaced by John Fallon. Although this has created excitement about a possible sale of the paper, Liechti said the Penguin deal was initiated under Scardino's tenure, so it's too soon to know if the move heralds a change of direction.

Shares in the group closed at £12.21 on Fiday, up 9p or 0.74%.

Key stats
Market capitalisation£1,441m
No. of shares out1,821m
No. of shares floating1,655m
No. of common shareholdersnot stated
No. of employees1596
Trading volume (10 day avg.)17m
Turnover-100,000m USD
Profit before tax-100,000m USD
Earnings per share-99,999.99 USD
Cashflow per share-99,999.99 USD
Cash per share0.56 USD

*Correct as at 26 Oct 2012

Canaccord upgrades Man Group as shares sink

Arun Melmanem, analyst at Canaccord, has upgraded hedge fund manager Man Group (EMG.L) from 'sell' to 'hold' following the steep decline in the value of the shares after its latest trading update.

Ahead of the third-quarter update on the 18th of this month the shares were trading at around the 90p mark, but they fell back to below 80p once the results were out. The decline wasn't entirely surprising as the update revealed a fifth consecutive quarter of fund outflows.

'We turn holders of Man Group on a valuation basis,' Melmanem said. 'The current share price presents a downside risk of 6% based on our target price [75p] offset by the dividend yield. We see valuations as fair given the earnings potential of the company.'

Melmanem added that the performance of Man's flagship AHL fund continues to be critical for the direction of the shares, as it contributes around 70% of management fee only revenues.

Shares in the group closed at 81.95p on Fiday, up 1.9p or 2.37%.

Key stats
Market capitalisation£276m
No. of shares out117m
No. of shares floating113m
No. of common shareholdersnot stated
No. of employees2592
Trading volume (10 day avg.)0m
Turnover£572m
Profit before tax£18m
Earnings per share16.38p
Cashflow per share21.48p
Cash per share13.60p

*Correct as at 26 Oct 2012

Peel Hunt cuts target price for Brammer

Dominic Convey, analyst at Peel Hunt, has cut his target price for industrial services business Brammer (BRAM.L) on the back of downbeat data on European industrial production.

'Persistent weakness in European manufacturing PMIs and the recent warnings from the industrials sector that European demand weakened further in Q3 has led us to reassess Brammer’s prospects for the financial year,' Convey said.

October's flash purchasing managers index (PMI) for the eurozone showed further deterioration at 45.3 versus an expectation of 46.5, the analyst noted. Any reading under 50 indicates a contraction. His pre-tax profits forecasts for this year and next fall 5%, bringing him in line with consensus.

His target price drops from 330p to 320p, although he retains a 'buy' recommendation. Brammer is a corporate client of Peel Hunt.

Shares in the group closed at 237p on Fiday, down 4.75p or 1.96%.

Key stats
Market capitalisation£50m
No. of shares out18m
No. of shares floating8m
No. of common shareholdersnot stated
No. of employees428
Trading volume (10 day avg.)0m
Turnover£69m
Profit before tax£2m
Earnings per share10.05p
Cashflow per share18.07p
Cash per share17.63p

*Correct as at 26 Oct 2012

FinnCap raises earnings forecast for Synectics

Duncan Hall, analyst at FinnCap, has increased his earnings-per-share (EPS) forecast for control room surveillance operator Synectics (SNX.L) and reiterated his 'buy' recommendation, saying the global potential of its offering is becoming apparent.

'Synectics is diligently building a position in critical infrastructure protection on a global scale,' Hall said. 'Projects are increasing in size and – while still bespoke in nature – are reaching out to international customers.'

Year-end results published earlier this month were encouraging, Hall said, with the networks division beating expectations and industrial division well supported by a promising pipeline of large-scale projects.

Hall's EPS estimate rises from 20.3p to 22.2p based on a 3% rise in his pre-tax profit estimate for the current year, which now stands at £4.8 million. 'The 10x price-to-earnings multiple for 2013 will appear to undersell growth prospects, although it may take until the New Year for this to become clear, he added.

Shares in the group closed at 285p on Fiday, up 2.5p or 0.88%.

Key stats
Market capitalisation£58m
No. of shares out201m
No. of shares floating158m
No. of common shareholdersnot stated
No. of employees2
Trading volume (10 day avg.)2m
Turnover-100,000m USD
Profit before tax-100,000m USD
Earnings per share-99,999.99 USD
Cashflow per share-99,999.99 USD
Cash per share0.44 USD

*Correct as at 26 Oct 2012

Merchant Securities reiterates 'hold' as Chariot Oil & Gas expands in Morocco

Brendan Long, analyst at Merchant Securities, has reiterated his 'hold' recommendation on Guernsey-based Chariot Oil & Gas (CHAR.L) amid news it has expanded its acreage in Morocco.

Chariot has entered an agreement with the government for a 75% interest in and operation of offshore licence Rabat Deep, which is adjacent to the company's existing licences in Morocco. The agreement remains subject to government approval. The Office National des Hydrocarbures et des Mines, Morocco's national oil company, will hold the remaining 25% interest.

The prospect is something of an unknown in terms of its hydrocarbon potential as no 3D seismic work has been done yet. Chariot believes a mobile salt basin in the licence has potential, which Long noted is a substantial change from the group's normal modus operandi in Namibia.

Shares in the group closed at 29.29p on Fiday, up 0.04p or 0.14%.

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  • Synectics PLC (SNXS.L)
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  • Chariot Oil and Gas Ltd (CHARC.L)
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  • Brammer PLC (BRAM.L)
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  • Man Group PLC (EMG.L)
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  • Pearson PLC (PSON.L)
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