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The Expert View: Sainsbury’s, BP and Ladbrokes
Our daily roundup of analyst commentary on shares, also including Sky and Carnival.
by Michelle McGagh on Mar 22, 2016 at 05:00
Sainsbury’s secures Argos in £1.4bn bid
Sainsbury’s (SBRY) has been given a clear run to buy Argos owner Home Retail following rival suitor Steinhoff International’s withdrawal from the race.
Sainsbury’s has announced a firm cash and shares offer valuing Home Retail shares at 173.2p, on the same terms as its earlier bid.
Jefferies analyst James Grzinic retained his ‘hold’ recommendation and target price of 280p on Sainsbury’s, which rose 1.2% to 276.5p yesterday.
‘Sainsbury’s has secured Argos on the original terms outlined a few weeks ago. This is a helpful dynamic for the group as it provides a potentially meaningful source of new earnings – with synergy targets now upped to £160 million – at a time when the outlook for the core business remains uncertain,’ he said.
‘Still, we lack the elements to conclude that this delivers material enough upside for a more active stance.’
Grzinic added that savings could be delivered ‘by the ability to wind down lease structures at Argos’ but he was less certain ‘about the extent to which the Argos trials in Sainsbury’s stores can provide more confidence on sales retention and/or growth’.
Look closer to find the opportunity in BP
Deutsche Bank has upped its target price on BP (BP), arguing investors are overstating the risk to the oil major’s dividends and underplaying its growth potential.
Analyst Lucas Hermann retained his ‘buy’ recommendation and increased the target price from 445p to 460p. The shares fell 1p to 356.2p yesterday.
Hermann singled out the company’s gas operations for particular praise. ‘We find a very competitive set of investments that not only deliver a material $3 billion annuity-type, oil price independent cash stream and $7 billion cash inflexion, but also offer material value upside,’ he said.
‘The delivery of an “annuity” cash stream via its gas investments can but cement our perception that the market is significantly overstating the dividend risks and underplaying growth potential.’
Carnival hits choppy currency waters
The outlook for cruise ship operator Carnival (CCL) this year but it is being hit by a strengthening dollar.
Berenberg analyst Stuart Gordon retained his ‘buy’ recommendation and increased the target price from £39.00 to £41.00. The shares rose 15p to £35.12 yesterday.
‘We remain optimistic about the outlook for the cruise names in 2016 and heading into next year,’ he said.
‘However, the continued strengthening of the US dollar is undermining strong operational performance, while for Carnival costs are going up more than we expected.
‘In combination, this sees us trim our 2016 adjusted earnings per share for Carnival by 6.9% to $3.48.’
He added that the price target reflecting ‘confidence in this year and that the share price will increasingly factor in earnings expectations for 2017’.
Ladbrokes upgraded after betting-friendly Budget
Bookmakers Ladbrokes (LAD) has been upgraded after benefitting from a tax tweak in the Budget.
Shore Capital analyst upgraded his recommendation from ‘hold’ to ‘buy’ but does not have a target price on the shares, which edged 1p higher to 121p yesterday.
‘The Budget came and went for the bookies with no further draconian increase in gaming duty, so the recent headwinds from taxation and machine play restrictions are slowly dissipating; in fact there was a slight win with the amendment of the tax treatment on free bets on casino and games bringing it in line with sports betting,’ he said.
‘We see the major sports brands such as Ladbrokes and William Hill as modest net beneficiaries, with sports betting typically used as a customer acquisition tool.’
Sky faces competition in Italy
Broadcaster Sky (SKYB) has some competition in Italy as French media group Vivendi edges into the market.
Liberum analyst Ian Whittaker reiterated his ‘sell’ recommendation and target price of 530p on the shares, which edged 4p higher to £10.16 yesterday.
‘We see Vivendi’s increasing steps into the Italian market as negative for Sky Italia, not only because Vivendi would be a more effective competitor to Sky Italia but also Vivendi’s effective control of Telecom Italia’s strategy could impact Sky Italia’s future growth prospects,’ he said.
He added that Vivendi has ‘significant experience in the pay-tv arena’ and ‘deeper pockets and ability to leverage off its French business’.