The Expert View: Shell, Experian and BSkyB

Our daily round-up of analyst recommendations and commentary, featuring Shell, Experian, BSkyB, 3i and Tate & Lyle.

Key stats
Market capitalisation	£144,284m
No. of shares out	6,259m
No. of shares floating	6,256m
No. of common shareholders	not stated
No. of employees	90000
Trading volume (10 day avg.)	4m
Turnover	344,054m USD
Profit before tax	19,585m USD
Earnings per share	3.12 USD
Cashflow per share	4.87 USD
Cash per share	2.18 USD

*Correct as at 1 Feb 2013

Shell costs to rise ‘aggressively’

Bank of America Merrill Lynch were among analysts downgrading their view on Shell (RDSB.L) on Friday, suggesting the shares will ‘underperform’.

In a note after Shell disappointed markets with a decline in annual profits, the BoAML analysts explained: ‘Our cautious view stems from concerns that Shell’s underlying costs and capex are set to rise more aggressively than the market currently believes.’

‘Ultimately we see this weighing on returns, earnings momentum and distributable cash flows in the medium term, underpinning our view the shares could face a de-rating,’ they continued.

Shell hiked its dividend on Thursday by more than the market expected. ‘Whilst we remain fully confident in Shell’s ability to pay its dividend, we see its 21% premium to European big oil... as unsustainable as returns and free cash flow deteriorate,’ the BoAML analysts added.

Shell shares reversed a Friday morning fall to rise by 0.4% to 2,285p in rallying markets.

Key stats
Market capitalisation	£11,211m
No. of shares out	1,010m
No. of shares floating	1,003m
No. of common shareholders	not stated
No. of employees	15737
Trading volume (10 day avg.)	2m
Turnover	2,840m USD
Profit before tax	418m USD
Earnings per share	0.42 USD
Cashflow per share	0.84 USD
Cash per share	0.16 USD

*Correct as at 1 Feb 2013

Experian: ‘worth paying for quality’

Sell Capita and Serco and buy Experian (EXP.L) instead, says WH Ireland’s John Goodall – despite the latter’s premium valuation, it’s worth paying for quality, the analyst adds.

Experian benefits from having both exposure to an economic upswing, as well as business areas that will help shield earnings during a downturn, Goodall explains.

‘The group boasts an impressive track record and has convincing growth prospects due to its strong emerging markets exposure.’

Unlike Experian, margins at Capita and Serco are likely to come under pressure, the analyst adds.

Shares in Experian ended Friday 2.6% higher at 1,099p.

Key stats
Market capitalisation	£13,554m
No. of shares out	1,649m
No. of shares floating	968m
No. of common shareholders	not stated
No. of employees	17431
Trading volume (10 day avg.)	2m
Turnover	£6,791m
Profit before tax	£906m
Earnings per share	52.16p
Cashflow per share	71.96p
Cash per share	70.11p

*Correct as at 1 Feb 2013

Nomura lifts revenues projection for BSkyB

Nomura analyst Matthew Walker has increased his revenue growth estimate for British Sky Broadcasting (BSY.L) following a strong second-quarter performance.

Walker's 2013 revenue growth estimate rises from 4.5% to 5.5% based on a stronger-than expected performance in retail; higher wholesale revenue; a modest advertising recovery; and strong growth in the Sky Bet division, which was up 40% in the first half.

'BSkyB makes itself less vulnerable to competitive threats through innovation as well as rights renewal and extension,' he said. 'Sony, Warner and Universal have all been recently renewed. On-demand connections are up 70% to 1.7 million and use has doubled.'

Walker has a 'buy' recommendation on the shares, and a target price of 975p.

Shares in the group closed at 825p on Friday, up 8p or 1%.

Key stats
Market capitalisation	£1,136m
No. of shares out	971m
No. of shares floating	926m
No. of common shareholders	not stated
No. of employees	331
Trading volume (10 day avg.)	4m
Turnover	£-329m
Profit before tax	£-783m
Earnings per share	-82.80p
Cashflow per share	-82.06p
Cash per share	119.35p

*Correct as at 1 Feb 2013

3i shares now ‘fully valued’ says Investec

Rallying 3i (III.L) shares are now fully valued, says Investec analyst Henry Freeman, who has downgraded his recommendation on the buy-out group to ‘hold’.

Freeman noted that the private equity company’s shares have rallied by 30% since the publication of interim results in November, helped higher again this week by the revelation that activist investor Edward Bramson has been building a stake.

Investec’s old 252p price target was surpassed. ‘While we revise up our price target to 278p, we believe the shares are now fully valued and downgrade our recommendation to HOLD,’ said Freeman.

‘We cannot see what value Sherborne Investors can add to the cost and debt reduction strategy currently being executed on by CEO Simon Borrows and his team,’ he added.

3i shares rose on Friday, rising by 2% to 268.7p.

Key stats
Market capitalisation	£3,747m
No. of shares out	466m
No. of shares floating	459m
No. of common shareholders	not stated
No. of employees	4636
Trading volume (10 day avg.)	1m
Turnover	£3,088m
Profit before tax	£303m
Earnings per share	63.80p
Cashflow per share	86.76p
Cash per share	91.06p

*Correct as at 1 Feb 2013

Tate & Lyle issues downbeat trading update

Shore Capital analyst Darren Shirley has put his full-year forecasts for Tate & Lyle (TATE.L) under review following a disappointing trading update.

'Tate has issued a subdued Q3 trading update for the period covering 1 October to 31 December, with a cautious tone across most of its activities in our view,' Shirley said. 'On profitability, management states that ‘as expected adjusted profit before tax was lower than the comparative period’ due to the investment in the group’s business transformation initiatives.'

Based on the cautious tone of the statement Shirley has put his 2013 and 2014 forecasts under review, and expects to reduce them. He reiterated his 'hold' recommendation on the shares.

Shares in the group closed at 791p on Friday, down 21p or 2.5%.