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The Expert View: SSE, Cobham & Domino's Pizza
Our daily round-up of analyst opinions on stocks, including Standard Life and Zoopla.
by Michelle McGagh on Mar 04, 2016 at 05:01
Investec upgrades high yielding SSE
Investec has upgraded energy provider SSE (SSE) despite its dividend cover falling below its long-term target.
Analyst Roshan Patel upgraded his recommendation from ‘hold’ to ‘buy’ and retained a target price of £15.00. The shares added 27p (2%) yesterday to £14.18.
‘SSE’s 'first financial responsibility' is to ensure a return to equity shareholders by paying a dividend. Since 1998, it has been steadfast,’ he said.
‘However, structural challenges in retail and generation have driven dividend cover below its long-term target. Our analysis finds the protection of retail margins is paramount to short-term earnings. Medium term, growth in regulated earnings legitimises and sustains an RPI-linked dividend growth commitment – standard among the 'pure' regulated names.
‘We upgrade to 'buy' on an unchanged £15.00 target price, with a compelling current yield of 6.4%.’
Liberum reviews Cobham after profits shortfall
Caution in commercial markets and recent disposals mean earning per share at defence and security specialist Cobham (COB) are expected to fall.
Liberum analyst Ben Bourne retained his ‘buy’ recommendation but placed the 330p target price ‘under review’ following full-year 2015 results which sent the shares sliding nearly 20p (7.6%) to 239p yesterday.
‘Full-year 2015 adjusted earnings per share increased by 5% to 19.5p – 3% below our estimate. The margin improved to 16%, as expected,’ he said.
‘Positives are order intake up 13% and Aeroflex integration ahead of plan. However, the outlook highlights more caution on the commercial business while defence and security business will be stable. We expect consensus full-year 2016 earnings per share to fall by c.6%.’
He added: ‘We expect our full-year 2016 earnings per share to fall 5% to reflect the dilution from recent disposals and a further 5% for more caution on the commercial markets.’
However, Bourne believes that while ‘commercial is currently a drag, we expect defence to be a relative outperformer as this year evolves’.
Domino’s: share buyback on the menu
There is potential for an earnings upgrade at takeaway chain Domino’s Pizza (DOM) due to share buybacks, says Numis Securities.
Analyst Douglas Jack retained his ‘buy’ recommendation and target price of £12.75 following the company's full-year results.
‘Underlying profit before tax rose by 18% to £73.2 million in 2015…with UK like-for-like sales up 11.7%...65 stores opened and UK franchisee profitability/store up 27%,’ he said.
‘Given this, record sales from new UK sites and UK life-for-like sales being up 10.5% in the first nine weeks of 2016, we are upgrading our forecasts by 3%.’
Jack added that ‘potential for earnings upgrades could be enhanced by share buybacks given the £40 million net cash positions, strong cash flow and management’s decision to retain a debt facility’.
The shares closed 11p or 1% lower at £10.38.
Barclays lowers target on 'premium' Standard Life
Insurer Standard Life (SL) may trade at a premium to peers, but it is justified considering its place in the savings market, says Barclays.
Analyst Alan Devlin retained his ‘equal weight’ recommendation but reduced the target price from 509p to 486p following a meeting with Standard Life's new chief executive Keith Skeoch.
‘Skeoch has retained his role of chief executive of Standard Life Investments [its fund management arm], which is at the heart of the operations,’ he said.
‘The key takeaway was that Skeoch is building a simplified and well-diversified investment company – effectively an asset manager with strong active asset management capabilities coupled with sticky and consistent net flows.
‘The chief executive believes the offering is diversified and not reliant on one strategy, while at its heart it is an investment company – he would be opportunistic and sell the traditional insurance businesses if it made sense for shareholders.’
Devlin said the company was ‘well placed in the UK savings market, and fully justified its premium rating versus peers’. However, he noted that it has to ‘prove it is not over reliant on GARS to drive any further premium versus the sector’. This is a reference to the £25 billion Global Absolute Return Strategies fund which has proved popular with fund buyers in the UK and Europe.
The shares firmed 2p (0.6%) to 344p.
Zoopla remains convinced about Jefferies vs Rightmove
The battle between property search engine Zoopla (ZPLA) and its rival Rightmove is over, providing another reason to buy the former.
Jefferies analyst Anthony Codling retained his ‘buy’ recommendation and target price of 400p. The shares added 6p or 2.6% to 236p.
‘In our view Rightmove and Zoopla are now fighting differing battles, suggesting that Rightmove will not seek to actively compete with Zoopla in the adjacent markets; this in our view provides another reason why Zoopla’s valuation discount to the sector is unjustified. Zoopla remains our highest conviction ‘buy’,’ he said.
Codling added that Zoopla was interested in consumer markets like uSwitch whereas Rightmove was ‘seeking to entrench its agency customers' CRM systems and back office’.
‘We believe Rightmove is seeking to maintain the support of the UK estate agents, and Zoopla to win the minds of the ultimate end user – the home buyer and home seller,’ he said.
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Look up the shares
- SSE PLC (SSE.L)
- Cobham PLC (COB.L)
- Domino's Pizza Group PLC (DOM.L)
- Standard Life PLC (SL.L)
- Zoopla Property Group PLC (ZPLAZ.L)