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The Expert View: Sky, BT and FirstGroup
Our daily roundup of analyst commentary on shares, also including Diageo and Daily Mail.
on Jan 29, 2016 at 05:00
Don’t treat Sky as a growth story
Broadcaster Sky (SKYB) has had a good second quarter but the case remains to ‘sell’ the stock.
Liberum analyst Ian Whittaker reiterated his ‘sell’ recommendation and target price of 530p despite the company adding 240,000 new customers in the second quarter. The shares fell 2% to £10.41 yesterday.
‘Sky’s Q2 results should be taken well,’ he said. ‘However, our fundamental “sell” case remains the same – that high cost inflation in programming and the need to invest in new products and marketing, and a lack of ability to pass this onto consumers will see a continuation of the pattern at Sky of steady and continued earnings downgraded.
‘In our view, investors should stop treating Sky as a growth story with a focus on key performance indicator metrics and start worrying more about the continued underperformance on earnings momentum.’
BT is top sector pick regardless of EE deal
BT (BT) is expected to complete its acquisition of EE this week but its results are likely to show it has plenty of opportunities for growth away from the deal.
Haitong Research analyst John Karidis retained his ‘buy’ recommendation and target price of 570p on the shares, which fell 2.7% to 465.6p yesterday.
‘BT is likely to complete the EE acquisition [today] and it will report Q3 2015/16 results on 1 February,’ he said. ‘We think BT-compiled consensus expects a “non-event” quarter relative to a year earlier and relative to year-on-year trends in Q2 2015/16.
‘We believe the detail in BT’s Q3 results will show that, even before EE’s acquisition, the group has numerous standalone opportunities to grow value by meaningfully more than consensus expects. But a number of key regulatory issues have yet to be concluded so still management cannot be explicit about BT’s prospects beyond the very near term.’
He added: ‘In sum, we believe discussion has over-emphasised risks from regulation and under-emphasised BT’s fundamental prospects, with and without EE. BT remains our top pick in the sector.’
Diageo earnings nadir could be here
Beverage company Diageo (DGE) has made some improvements as work behind the scenes starts come to fruition.
Shore Capital analyst Phil Carroll placed his ‘hold’ recommendation ‘under review’ but does not have a target price for the stock. The shares fell 0.7% to £18.54 yesterday.
‘Diageo has announced its interim results for the period ended 31 December 2015. Overall, we believe the results show some improving trends with organic volume growth of 1% and organic net sales growth of 1.8%,’ he said.
‘Overall, we believe these results represent a positive step in the right direction for Diageo with the work being done behind the scenes looking to be bearing fruit.
‘As we indicated in our preview, this could be the nadir to the earnings downgrade cycle which we will look at in more detail… ahead of doing so we put our “hold” recommendation “under review”.’
Daily Mail shakes off weak first quarter
A first quarter updates from Daily Mail General Trust (DMGT) shows how it is tackling a tough advertising environment.
Numis analyst Gareth Davies reiterated his ‘buy’ recommendation and target price of 970p on the shares, which fell 3p to 658.5p yesterday.
‘DMGT’s Q1 trading update confirms guidance for the year. Underlying growth is a touch weaker than hoped, though absolute revenues are running ahead on currency,’ he said.
‘Management announced a cover price increase at the Daily Mail Monday to Friday, this mitigates a tougher than expected advertising backdrop in January.’
He added: ‘Absolute revenues +5% is running a little ahead of our expectations, helped by currency but with underlying growth a touch soft at +1% at a group level.
‘Importantly, management confirm that they remain comfortable with their revenue and profit outlook for the year.’
FirstGroup results hit by flooding and terrorism
Bus and train operator FirstGroup (FGP) has had a challenging third quarter due to flooding in the UK and the terrorist attacks in Paris.
Jefferies analyst Joe Spooner retained his ‘hold’ recommendation and target price of 120p on the shares, which tumbled 12% to 90p yesterday.
‘There’s nothing too surprising within the factors that sit in the backdrop to FirstGroup’s challenging Q3 – flooding, poor retail footfall, the Paris atrocity,’ he said.
‘But the disappointment is that the pressure behind the group’s lowered earnings expectation focuses on two of the key units targeted to drive group recovery. [The] update reminds us of the fragility of prospects in the absence of stronger trading conditions – bus and rail groups have big revenue and big cost lines.’
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Look up the shares
- Sky PLC (SKYB.L)
- FirstGroup PLC (FGP.L)
- BT Group PLC (BT.L)
- Daily Mail and General Trust PLC (DMGOa.L)
- Diageo PLC (DGE.L)