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The Expert View: Tesco, Sports Direct and Taylor Wimpey
Our daily roundup of analyst commentary on shares, also including Savills and Spire Healthcare.
by Michelle McGagh on Jan 12, 2016 at 05:00
Tesco derating piques analyst interest
Tesco (TSCO) shares have derated in the wider market sell-off, piquing the interest of Jefferies analysts.
Jefferies analyst James Grzinic retained his ‘hold’ recommendation and target price of 185p on the shares, which dipped 1% to 145.5p yesterday.
‘The wider market sell-off and mixed UK market share updates have seen Tesco derate… in the early stages of 2016,’ he said. ‘We still have not decided on the implications of a likely confirmation of short-term profit expectations with the upcoming Q3/Christmas update. Would this simply trigger a short cover, or would it signal a more enduring turn in the stock?’
He added: ‘The strong derating allows us to reconsider the stock with greater interest. We still expect greater satisfaction in owning Morrisons... in addition, we appear to be less optimistic than most on what the balance of scale advantage and freehold disadvantage could mean for Tesco’s longer term margin sustainability.’
Savills upgraded on positive 2016 predictions
Estate agent Savills (SVS) has been upgraded despite the uncertain economic outlook that could impact house prices and sales.
Numis analyst Chris Millington upgraded his recommendation from ‘add’ to ‘buy’ with a target price of £10.85. The shares rose 3.3% to 873p yesterday.
‘Savills has delivered another strong performance which has prompted us to upgrade 2015 estimates by 7% and 2016 by 1%,’ he said.
‘The smaller upgrade in 2016 reflects the uncertain economic outlook, but also that a sizeable transaction in investment management has been recognised into 2015, versus our original expectation of 2016.’
He said the company ‘remains well placed to make progress in 2016 despite the more uncertain economic outlook, given its geographic diversity and support from its non-transactionary income streams’.
‘While we have left our target price unchanged, recent share price weakness has increased the upside to our target price and we therefore move from ‘add’ to ‘buy’.’
Spire shares expected to outperform this year
Confidence in private hospital network Spire Healthcare (SPI) has been restored after a trading update last week.
Berenberg analyst Graham Doyle reiterated his “buy” recommendation and upgraded the target price from 365p to 390p. The shares fell 1.4% to 307p yesterday.
‘Spire’s trading update on Friday went a long way to restoring confidence in the growth story following two guidance downgrades in six months and uncertainty about NHS pricing,’ he said.
‘Management reiterated its full-year 2015 guidance and provided an optimistic outlook for 2016 that was ahead of market expectations. The core pillar of this optimism is the finalised pricing for the NHS for 2016, which is far better than most had expected and removes and overhang that has weighed on the shares since the autumn.’
He added that he ‘believes this update is the start of a strong of positive catalysts for Spire, which should see the shares outperform in 2016’.
Sports Direct downgraded after profit warning
Sports Direct (SPD) has been downgraded following a profit warning from the discount sportswear retailer.
Liberum analyst Tom Gadsby downgraded his recommendation from ‘buy’ to ‘hold’ with a target price of 470p on the stock. The shares were trading at 403p yesterday, down 21% since Friday’s warning.
‘At Sports Direct’s interims in December, we downgraded 2016-18 profit before tax by between 6% and 8%,’ he said.
‘Following the trading update on 8 January we downgraded again, by 8% in 2016 and 6% in 2018. While the latest update only related to weakness over the past month, we see a lack of earnings momentum in the short to medium term, and a lack of European mergers and acquisitions.
‘Sports Direct has levers that it can pull… but will not do so until the future shape of the business is clear.’
Taylor Wimpey rating high: look to smaller housebuilders
An end of year update from housebuilder Taylor Wimpey (TW) ‘lacks energy’ and even though the number stack up there is no argument for upgrading the stock.
Shore Capital analyst Robin Hardy retained his ‘hold’ recommendation on the stock but does not have a target price. The shares rose 0.6% to 194.9p yesterday.
‘A slightly functional tone to the year-end update and while still delivering a positive message the statement lack some of the energy we might have expected,’ he said. ‘Numbers are broadly in line with unit sales at 13,341 but the proportion of social housing was higher... this leaves an average selling price around £1,000 below forecast at £230,000.’
He added that ‘the [share] rating is high for this point in the cycle and given that it is becoming harder to see where growth for the very large housebuilders will be coming from, we still cannot see good grounds for moving away from a “hold” rating’.
‘We feel that the smaller housebuilders looks better relative value within the sector and rebalancing investment positions within the sector is worth considering,’ Hardy added.
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Look up the shares
- Tesco PLC (TSCO.L)
- Savills PLC (SVS.L)
- Sports Direct International PLC (SPD.L)
- Taylor Wimpey PLC (TW.L)
- Spire Healthcare Group PLC (SPI.L)