The Expert View: RBS, Aggreko and JD Sports

Our daily round-up of analyst recommendations and commentary, featuring RBS, Aggreko, JD Sports, Max Petroleum and Senior.

Key stats
Market capitalisation	£161,778m
No. of shares out	57,236m
No. of shares floating	52,735m
No. of common shareholders	not stated
No. of employees	142800
Trading volume (10 day avg.)	13m
Turnover	£21,410m
Profit before tax	£-2,044m
Earnings per share	-18.89p
Cashflow per share	-1.30p
Cash per share	139.26p

*Correct as at 22 Oct 2012

Investec downgrades Royal Bank of Scotland to 'sell'

Ian Gordon, analyst at Investec, has downgraded Royal Bank of Scotland (RBS) from 'hold' to 'sell', saying he's 'perplexed' by the positive reaction to the bank's decision to leave the government's asset protection scheme (APS) last week.

Although he agreed that leaving the scheme was necessary for RBS to avoid paying more than the £2.5 billion already charged for the notional protection, he said the bump in the share price following the news didn't really make sense.

'Let’s be clear; the scheme was a charade from the first moment it was put in place (December 2009),' Gordon said. 'At that time, although the outlook remained grim, there was no realistic prospect of this 'catastrophe-only' insurance scheme 'paying out'.'

Gordon forecasts a 'jaw-dropping' third-quarter loss of £1 billion and said the outlook for returns thereafter remains bleak. 'As such, with the stock on 0.6x tangible net asset value and close to a new 17-month high, we downgrade to sell,' he concluded, reiterating his target price of 255p.

Shares in the group closed at 281.5p on Monday, up 0.5p or 0.18%.

Key stats
Market capitalisation	£5,643m
No. of shares out	268m
No. of shares floating	235m
No. of common shareholders	not stated
No. of employees	4262
Trading volume (10 day avg.)	1m
Turnover	£1,396m
Profit before tax	£260m
Earnings per share	97.53p
Cashflow per share	168.43p
Cash per share	20.31p

*Correct as at 22 Oct 2012

JP Morgan cuts Aggreko's target price on profits warning

Nicholas de la Grense, analyst at JP Morgan, has reduced his target price for temporary power machinery firm Aggreko (AGGK.L) following Friday's profits warning.

In its latest interim management statement Aggreko cut its full-year profit forecast 2.5%, down from £377 million to £365 million, blaming unstable currency markets and bad debt provisions. The analyst's target price falls from £23.60 to £21.65, and he reiterated his 'neutral' stance.

The analyst said the conference call that followed the press release painted a picture of robust earnings at home offset by lower-than-expected international revenue growth and margins.

Provision for bad debts is not unusual in many of the markets where Aggreko operates, de la Grense said, and the normal response is to reduce power output to minimise potential losses and encourage customers to pay up.

'Whilst management have extensive experience in similar situations, and have not suffered material losses in the past, they frequently highlight the risk of significant losses occurring at some point,' he said.

Aggreko features in the Kames Ethical Equity fund, which is run by Citywire A-rated Audrey Ryan.

Shares in the group closed at £20.73 on Monday, down 64p or 2.99%.

Key stats
Market capitalisation	£377m
No. of shares out	49m
No. of shares floating	14m
No. of common shareholders	not stated
No. of employees	10626
Trading volume (10 day avg.)	0m
Turnover	£1,060m
Profit before tax	£47m
Earnings per share	96.27p
Cashflow per share	150.48p
Cash per share	137.74p

*Correct as at 22 Oct 2012

Seymour Pierce upgrades JD Sports to 'buy'

Freddie George, analyst at Seymour Pierce, has upgraded JD Sports (JD.L) on reports it is planning to launch a new chain aimed at wealthy fitness fans.

The move was widely expected by industry watchers following the departure of JJB, which went into administration at the end of last month with the loss of 2,000 jobs. 'We believe it will be seen as a plausible alternative to Sports Direct, which would have hoped to dominate the sports specialist market, and as replacement for the disappearing JJB format,' George said.

According to Retail Week the pilot store will open in a former Next branch in London's Bow Lane, and will focus on running and football equipment.

'There is, in our view, an opportunity for a well managed, sports specialist chain and a plausible alternative to Sports Direct, which is focused on offering customers range and service in a conducive atmosphere rather on the level of discount and 'value for money'. JD will also have the support of the major brands, Nike and Adidas,' George said.

His target price rises from £8 to £10.

Shares in the group closed at 756p on Monday, down 13p or 1.69%.

Key stats
Market capitalisation	£50m
No. of shares out	1,027m
No. of shares floating	762m
No. of common shareholders	not stated
No. of employees	161
Trading volume (10 day avg.)	8m
Turnover	31m USD
Profit before tax	-5m USD
Earnings per share	-0.01 USD
Cashflow per share	0.01 USD
Cash per share	0.00 USD

*Correct as at 22 Oct 2012

Merchant Securities lifts target price for Max Petroleum

Brendan Long, analyst at Merchant Securities, has bumped up his target price for Kazakhstan-based oil explorer Max Petroleum (MXP.L) on news it has made a commercially viable discovery in the Baichonas West prospect.

The firm's Baichonas West well hit light oil at a stable rate of 450 barrels a day with no water. Testing suggests the prospect holds about 16 million barrels and that recovery rates should be between 20% and 40%.

'This implies total production from Baichonas West should amount to 3.2 million to 6.4 million, our prior target price has assumed a figure of 2.5 million barrels, which we are revising upward to 4 million barrels based on the guidance provided by the company,' Long said. 'We are therefore increasing our target price to 4.4p from 4.0p.'

Long's valuation reflects only half of Max's fundamental value to offset its high level of debt. Long retains his 'hold' recommendation on the shares.

Shares in the group closed at 4.7p on Monday, up 0.02p or 0.43%.

Key stats
Market capitalisation	£834m
No. of shares out	413m
No. of shares floating	410m
No. of common shareholders	not stated
No. of employees	5878
Trading volume (10 day avg.)	1m
Turnover	£641m
Profit before tax	£55m
Earnings per share	13.21p
Cashflow per share	18.74p
Cash per share	7.29p

*Correct as at 22 Oct 2012

Oriel sticks with 'buy' on Senior

Guy Brown, analyst at Oriel Securities, has reiterated his 'buy' recommendation on engineering business Senior (SNR.L) following a reassuring trading update.

In its third-quarter statement Senior said earnings are expected to meet the forecasts provided in the first-half update. 'Cash generation remained strong,' the update said, 'with net debt at the end of September of £68 million being £25 million lower than at the start of the year'.

Although Brown said demand for aerospace products from the US military is falling and its Flexonics division, which makes tubes and valves, is also suffering from reduced sales, demand for components for commercial aircraft remains strong.

Shares in the group closed at 197p on Monday, up 0.7p or 0.36%.