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The Expert View: Prudential, Shell and Kier
Our daily roundup of analyst commentary on shares, also including OneSavings Bank and Safestyle.
by Michelle McGagh on Mar 18, 2016 at 05:00
Pru set for double-digit growth: ‘buy’
Insurer Prudential (PRU) is Barclays’ top pick for large cap growth stocks in European insurance.
Barclays analyst Alan Devlin reiterated his ‘overweight’ recommendation and increased the target price from £17.54 to £17.79. The shares edged 2p lower to £13.37 yesterday.
‘We view Prudential as the one true large cap growth stock in European insurance, and the compound growth of its earnings is the tangible evidence,’ he said.
‘Prudential has underperformed the FTSE year-to-date on concerns in its US business on the potential Department of Labor reforms, coupled with question marks on the sustainability of Hong Kong sales and on wider corporate credit concerns.
Devlin said he has already discussed the idea that ‘these issues are not only manageable but indeed exaggerated with a relatively minor impact to earnings’ and that Prudential has ‘quality of earnings, capital and dividend growth’ as plus points.
‘We conclude that Prudential remains a strong high quality business and the double-digit growth story is intact,’ he said.
Shell and Saudi Aramco go their separate ways
Royal Dutch Shell (RDSa) and Saudi Aramco have announced an amicable divorce over their joint venture Motiva.
Jefferies analyst Jason Gammel retained his ‘buy’ recommendation and target price of £20.40 on the shares, which rose 1.6% to £17.30 yesterday.
‘Shell and Saudi Aramco have announced plans to separate assets held in their 50/50 Motiva joint venture in the US,’ he said.
‘The transaction increases Shell leverage to US gasoline and enhanced flexibility on downstream divestitures.’
Gammel said following Shell’s takeover of BG ‘we expect the combined entity to have one of the most resilient cash cycles in the sector with a break-even Brent price sub-$60 post-2017’.
OneSavings Bank: buy-to-let fears overdone
Shares in OneSavings Bank (OSBO) are recovering from an over-reaction to fears about the buy-to-let market.
Shore Capital analyst Gary Greenwood reiterated his ‘buy’ recommendation but does not have a target price on the stock following final 2015 results. The shares surged 18.6% to 301.5p yesterday.
He said the results were ‘broadly in line with our own and consensus expectations’.
‘The only thing we would pick out is a slight increase in the core tier 1 ratio, which was better than expected,’ he said.
‘In terms of buy-to-let, the group has tightened some of its rental cover criteria for amateur landlords and first-time borrowers ahead of potential regulatory change. However, the majority of applications continue to come from professional landlords who retain a strong appetite to borrow despite potential changes to taxation.
‘As stamp duty is offset-able against capital gains, we do not expect the Budget announcement to include professional landlords to materially impact on demand. Management notes that its pipeline remains strong.’
Greenwood added that ‘the shares are more than discounting fears around a potential slowdown in the buy-to-let market and collapse in returns and so we reiterate our positive stance’.
Prospects for Kier not reflected in share price
Construction and property group Kier (KIE) has been upgraded thanks to a positive outlook for the second half of its financial year.
Numis analyst Howard Seymour upgraded his recommendation from ‘add’ to ‘buy’ with a target price of £16.25. The shares dipped 1p to £12.99 yesterday.
‘Kier has demonstrated a strong performance across the group with good organic growth in construction and residential operations, while (the acquisitions of) Mouchel has clearly been the driver of services growth,’ he said.
‘We believe this sets the scene for an excellent outlook for H2 and beyond. Market improvement coupled with management actions… means that Kier has the platform to provide best-in-class growth relative to the wider sector.’
Seymour added: ‘We continue to believe that this is not reflected in the share price – noting in particular the 20% yield premium to the sector even though Kier is one of the few increasing its dividend per share.’
Safestyle reports special divi
Double glazing company Safestyle (SFES) has reported further share gains and a special dividend.
Liberum analyst Charlie Campbell retained his ‘buy’ recommendation and increased the target price from 280p to 310p. The shares rose 3.3% to 277.3p.
‘Safestyle’s 2015 results were strong, as expected, with sales of c.10% driven by another year of market share gains,’ he said.
‘Growth improves in the second half due to the success of the finance offer, with momentum continuing into 2016. A surprise special dividend of 6.8p should increase investor focus on high and rising free cashflow. Our revised target price of 310p is based on 7% free cashflow yield. We leave estimates unchanged, conservatively.’
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Look up the shares
- Prudential PLC (PRU.L)
- Royal Dutch Shell PLC (RDSa.L)
- Kier Group PLC (KIE.L)
- Safestyle UK PLC (SFES.L)
- OneSavings Bank PLC (OSBO.L)