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The Expert View: Sainsbury's, Cobham & Foxtons
Our daily roundup of analyst commentary on shares, also including National Express and Taylor Wimpey.
by Michelle McGagh on Jan 12, 2017 at 05:01
Sainsbury's under pressure despite sales uptick, says Shore Capital
Sainsbury’s (SBRY) Christmas sales inched higher but the supermarket is still underperforming, with Shore Capital banking on Argos to boost profits.
Analyst Clive Black reiterated his ‘buy’ recommendation on the stock, which was trading up 5.4%, or 14p, at 273p after it released a third quarter trading statement showing sales were up 0.1% over the period, on top of a Black Friday boost from Argos.
Black said for some years Sainsbury's had outperformed and it had 'made hay when its supermarket competitors were faltering'.
'[Q3 results show] this is not the case. In fact, those competitors, most particularly Tesco, are eating into Sainsbury's trading performance,' he said.
'Accordingly, we now see a Sainsbury's supermarket that is underperforming the UK market and, at the fringes, losing market share, especially in core grocery. Ordinarily we would be quite concerned about the trajectory of travel with respect to Sainsbury's revenue performance, the concern being that in due course negative operation gearing would likely to take hold on trading profitability. However, Sainsbury's group is now a broader business that embraces Argos.'
Black said he would be happier if 'Sainsbury's was shooting the lights out and Argos was in a better cycle of profitability' however, 'reality is that Sainsbury's is fighting for profit stability in an increasingly competitive trading environment and Argos needs to be turned around'.
Jefferies: Cobham not in meltdown
Shares in aerospace and defence company Cobham (COB) nosedived after it cancelled its dividend and issued a profit warning but Jefferies believes the company isn’t in ‘meltdown’.
Analyst Sandy Morris retained his ‘buy’ recommendation and target price of 180p on the shares, despite shares trading down 14.5%, or 23p, at 140p at the time of writing.
‘[The] trading update is disappointing, particularly… 2016 net debt that is guided around £130 million higher than we expected,’ he said.
‘We believe Cobham is not in meltdown, but we recognise the high net debt, passing of the full-year 2016 final dividend and the absence of agreement on [air-to-air refuelling tanker] KC-46 may make it appear otherwise to some observers.’
Morris said Cobham would be pleased to see the back of 2016 but that there remained a risk of no further investment into the KC-46 programme.
‘We suppose the argument that Cobham has now absorbed material financial pain - up to and including the passing of the full year 2016 final dividend - might simply cut no ice with the customer,’ he said.
Foxtons faces tough year as London market slows, says Peel Hunt
Peel Hunt is predicting a tough year for estate agents Foxtons (FOXT) as the London property market slows.
Analyst Gavin Jago retained his ‘sell’ recommendation and target price of 80p following an update from the group. The shares were trading down 4.2%, or 4p, at 94p at the time of writing.
‘Foxton’s update highlights that conditions in the London residential market remain challenging, particularly in sales,’ he said.
‘Full year 2016 earnings [are] expected to be c.46% lower than the prior year at £25 million an c.10% below consensus.
‘There has been no improvement in trading through the second half and the outlook for 2017 is tough, with market volumes expected to be down on 2016 levels. The shares are trading at 14.9x our 2017 forecasts.’
He added that Foxtons had made some cost cuts that would come through this year but there were still downside risks.
National Express rail disposal has ‘neutral’ impact, says Liberum
Train and coach operator National Express (NEX) has disposed of its only UK rail franchise, which Liberum says is a sign it sees opportunities elsewhere.
Analyst Gerald Khoo retained his ‘hold’ recommendation and target price of 370p on the stock, which was trading flat at 347p at the time of writing.
‘The disposal of the group’s sole UK rail franchise to Trenitalia for £70 million is value neutral within our sum-of-the-parts framework, but is the logical conclusion of management frustration at the risk/reward profile of recent franchise competitions,’ he said.
‘National Express clearly sees better opportunities elsewhere, mainly in overseas contract bids. A return to bidding for future UK franchises is not ruled out, but seems unlikely to us at this stage. The focus on higher returning businesses is positive for sentiment on National Express, but its listed peers will now face a more active and aggressive bidder for new rail contracts.’
Taylor Wimpey downgraded but income attraction remains, says Numis
Numis has downgraded housebuilder Taylor Wimpey (TW) on the back of share price increases.
Analyst Chris Millington downgraded his recommendation from ‘buy’ to ‘add’ with a target price of 205p following an update. The shares were trading down 1.3%, or 2.3p, at 172p at the time of writing.
‘Taylor Wimpey’s update points to full-year results at the upper end of analyst expectations and we are increasing 2016 and 2017 profit before tax estimates by 3% and 4% respectively,’ he said.
‘The group describes trading as robust and the increase in net cash to £365 million should give a good underpinning for the 2017 dividend, which we think can rise further in 2018. Given the strong run in the shares so far this year we move from “buy” to “add”, although we maintain our target price.’
He added that the shares were currently trading on 9.1x price/earnings with a yield of 8% and ‘given we feel the yield is looking well underpinned we think the shares still offer valuation attractions, particularly to income investors’.
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Look up the shares
- J Sainsbury PLC (SBRY.L)
- Taylor Wimpey PLC (TW.L)
- Cobham PLC (COB.L)
- National Express Group PLC (NEX.L)
- Foxtons Group PLC (FOXT.L)