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The Expert View: SSE, BHP Billiton and Majestic Wine
Our daily roundup of analyst commentary on shares, also including Severfield and PureTech.
by Michelle McGagh on Apr 12, 2017 at 05:00
Berenberg upgrades SSE
Berenberg has upgraded energy provider SSE (SSE), which it believes can continue paying a sector-topping yield of 6.5%.
Analyst Andrew Fisher upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from £15.50 to £16.50 on the stock, which was trading flat at £14.81 at the time of writing.
‘To be convinced of a “buy” case for SSE, investors have to believe that the group’s sector-topping 6.5% yield and promise of retail price index-linked dividend growth is sustainable; that debt ratios are manageable and will reduce; that political risk in the UK is overplayed; and that the risk to power prices in the UK wholesale market is skewed to the upside,’ he said.
‘We believe all four.’
He added that the tight reserve margin and drop-off in capacity investment within UK energy ‘could remain a potentially inflationary feature of the UK power market for some time’ and therefore ‘we assume a moderate rise in UK power prices’.
Elliott’s call for BHP restructure ‘short-termist’, says Shore Capital
Shore Capital has criticised activist investor Elliott Advisor’s restructuring proposal for miner BHP Billiton (BLT) as short-termist.
Analyst Yuen Low does not have a target price or recommendation on the stock, which was trading at £13.23 at the time of writing, up 3% since Elliott’s intervention.
BHP has rebuffed Elliott’s restructuring plans, stating that cost and associated risks would ‘significantly outweigh any potential benefits’.
‘We find ourselves coming down on BHP’s side of the argument,’ said Low.
‘Call us cynical, but we think that Elliott’s proposals are short-termist and for its own benefit. If Elliott gets its way and BHP’s share price rises as a result, we would not be surprised to see its 4.1% interest disposed of in short order, leaving the company and other shareholders to pick up the pieces.’
MD out but Majestic isn’t down, says Liberum
The departure of Majestic Wine (WINEW) managing director John Colley is not a step back as he leaves the wine merchants in a stronger position, says Liberum.
Analyst Wayne Brown retained his ‘buy’ recommendation and target price of 380p on the stock, which was trading 2.9% higher at 372.1p at the time of writing.
‘The departure of John Colley...is a disappointment but one should not see this as a strategic step back,’ he said.
‘Colley has put in place systems, processes and a team in the retail business that had not previously existed. The heavy lifting has been done and the business is in a much stronger position.’
He added that sales growth had returned and it was now time to improve the customer base and shops, which plays to the new managing director Rowan Gormley’s skill set.
PureTech has blockbuster potential, says Jefferies
PureTech Health (PRTC) is expanding its reach in immunology which could have ‘blockbuster potential’, according to Jefferies.
Analyst Peter Welford reiterated his ‘buy’ recommendation and target price of 255p on the stock on the back of the company’s new initiative Nybo, which is looking to build on technology from the New York University School of Medicine to create new immunology treatments.
‘This new subsidiary further expands the portfolio of opportunities in immunology, all of which “blue sky” could have blockbuster potential,’ he said.
‘The shares currently trade at a 40% discount to aggregate portfolio value plus cash, before ascribing to earlier stage businesses.’
Welford said that given the recent problems at Allied Minds ‘we highlight PureTech’s focus on truly big prize markets, validation from third parties and pharma majors, plus near-term milestones all at more than 40% discount’.
Severfield building towards growth target, says Peel Hunt
Structural steel specialist Severfield (SFR) is moving up the stepping stones towards achieving its growth targets, says Peel Hunt.
Analyst Harry Philips reiterated his ‘buy’ recommendation and increased the target price from 85p to 90p following a strong second half that means full-year results are expected to be ahead of expectations. The shares were trading flat at 83p at the time of writing.
‘Encouragingly, this performance has been matched in cashflow, with net funds at the year end similarly ahead of expectations,’ said Philips.
‘Less positive was the news that chief executive Ian Lawson has taken a temporary leave of absence due to physical ill health…[we] are confident that the remaining team will continue the excellent progress towards the June 2016 target of doubling 2016 pre-tax profit of £13.2 million within four years.’
He said the targets ‘are simply not reflected in a 2018 price/earnings multiple of 13.6x’.
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Look up the shares
- SSE PLC (SSE.L)
- BHP Billiton PLC (BLT.L)
- Majestic Wine PLC (WINEW.L)
- Severfield PLC (SFR.L)
- PureTech Health PLC (PRTC.L)