Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/money/gallery/a872159
The Expert View: Royal Mail, M&S and Anglo American
Our daily roundup of analyst commentary on shares, also including Mondi and Poundland.
by Michelle McGagh on Jan 08, 2016 at 05:00
Royal Mail: parcels are not the solution
Parcels are not the panacea Royal Mail (RMG) needs after a decline in letter volumes.
Liberum analyst Gerald Khoo initiated coverage of the stock with a ‘sell’ recommendation and target price of 360p on the shares, which fell 1% to 438.6p yesterday.
‘Letter volumes remain in secular decline, but online shopping growth has supported Royal Mail’s parcel volumes,’ he said.
‘However, we believe Royal Mail is poorly positioned for the future, with e-substitution hitting volumes for books, music and computer software, and faster growth in “click and collect” and other alternatives. Meanwhile, the current light touch regulation framework could be at risk.’
Anglo American: plan in place but it needs to act now
Miner Anglo American (AAL) has a plan to turn the business around but timing is essential.
Barclays analyst Ian Rossouw retained his ‘underweight’ recommendation and reduced the target price from 485p to 225p. The shares tumbled 11% to 240.7p yesterday.
‘Time is of the essence for Anglo American, in our view,’ he said. ‘The company’s strategy… is essentially the right one – shrinking the business into c.20 assets that could probably weather further deterioration in commodity pricing.
‘However, lack of detail on timing and the quantum of unlocked value leave the shares vulnerable and the market appears impatient. If the company is to avoid acceleration of what is essentially an equity to debt story with potentially significant implication for equity value, then management need to act.’
He added that the company would need to ‘unbundle the entire Anglo American South Africa company’ which would ‘allow the company to approach shareholders to participate in an equity raise, which, if big enough – we estimate $7 billion – could reverse the likely decline in credit rating, attract interest from value investors both institutional and corporate, and generally set the company on a stronger footing’.
M&S still a ‘buy’ after Bolland’s departure
There is still a lot to like at high street giant Marks & Spencer (MKS) despite chief executive Marc Bolland’s retirement this year.
Shore Capital analyst Clive Black has retained his ‘buy’ recommendation, but only just, and does not have a target price for the stock.
Black welcomed Bolland’s successor Steve Rowe. M&S yesterday released its third quarter update, showing general merchandise sales down 5.8% but online sales rising 20.9% and international sales up 2.9%.
In 2016, general merchandise gross margin is now expected to be at the top end of expectation.
‘Following this update we were tempted to place our “buy” stance on M&S shares under review,’ said Black.
‘However, on reflection, the market wide factors are deemed by us to be pretty tidal, the self-control of the business is very good, the stock valuation multiples outlined above are not overly demanding, there is a particularly attractive dividend yield and we can foresee Steve Rowe bringing considerable energy to the M&S table.’
Mondi share price falls makes it a ‘buy’
Packaging and paper group Mondi (MNDI) has fallen in price and is now at an attractive entry point.
Jefferies analyst Justin Jordan retained his ‘buy’ recommendation and target price of £18.00 on the shares, which fell 2.9% to £12.46 yesterday.
‘Mondi down 13.9% in the past month – versus FTSE 100 -2.6% - on concerns regarding [packaging paper] Kraftliner prices [and] South Africa exposure,’ he said.
‘Following reassuring 2015 pre-close update, we retain unchanged 2015/16 estimates. Trading on 12.3x current year 2016 price/earnings, with 7% free cashflow yield and 3% dividend yield.
‘Recent weakness provides attractive entry point to a high quality packaging group.’
He added that the company trades on a ‘modest premium to EU peers, reflecting Mondi’s sector-leading return on capital employed (ROCE) and flexibility for increased 20%+ ROCE’.
Poundland’s long-term strategy is encouraging
A three- to five-year strategy set out by Poundland (PLND) increases expectations for the discount retailer, and counters current trading gloom.
Peel Hunt analyst Jonathan Pritchard retained his ‘buy’ recommendation and 400p target price on the shares.
Poundland yesterday tumbled 11.9% to 169p after warning profits would come in below forecasts following a poor Christmas season. But Pritchard saw better times ahead.
‘Poundland has now set out a clear strategic vision for the next three to five years and we are encouraged,’ he said. ‘Yes, trading is weak at present – which high street retailers’ isn’t? – but in terms of forecast momentum we are confident that we have found the nadir.
‘Of arguably most interest is the six-store trial of multiple pricing in the former Family Bargains, under a new fascia, starting in April. If that works, then the profit and loss could be galvanised as it rolls across the Poundland network.
‘The shares do not reflect the prospect that guidance for 99p Stores could be too low, and certainly don’t discount any upside from going multiple-price. We believe they offer excellent value.’
More about this:
Look up the shares
- Royal Mail PLC (RMG.L)
- Mondi PLC (MNDI.L)
- Anglo American PLC (AAL.L)
- Marks and Spencer Group PLC (MKS.L)
- Poundland Group PLC (PLND.L)