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The Expert View: Victoria, Diageo and Invensys

Our daily round-up of analyst recommendations and commentary, also featuring Catlin and Aveva.

by Harry Brooks on Nov 13, 2012 at 05:01

Our daily round-up of analyst recommendations and commentary, featuring Diageo, Invensys, Catlin, Aveva and Victoria.

Key stats
Market capitalisation£15m
No. of shares out7m
No. of shares floating3m
No. of common shareholdersnot stated
No. of employees634
Trading volume (10 day avg.)0m
Profit before tax£2m
Earnings per share26.11p
Cashflow per share64.78p
Cash per share11.61p

*Correct as at 12 Nov 2012

Seymour Pierce downgrades Victoria on profit warning

Freddie George, analyst at Seymour Pierce, has downgraded carpet maker Victoria (VCP.L) from 'buy' to 'hold' on the back of a profit warning.

Victoria, whose customers include John Lewis, said a tough trading conditions in the UK and Australia have taken a toll, with sales of vinyl tile in particular failing to meet expectations.

'Following their appointment at the general meeting on 3 October, the new board of directors has undertaken a detailed review of the current trading and short-term prospects of Victoria PLC,' the statement said. 'This review is continuing. However, it is already apparent that the company is likely to break even at best for the full year ending 4 April 2013, at a pre-tax level before exceptional costs.'

George said Victoria's long-established relationship with major retailers and opportunity to tap the contract and insurance replacement markets are big plusses, and he noted that the shares are trading below net asset value.

However, the profits warning is still unsettling news. 'For the time being, we are reducing our recommendation from Buy to Hold (Buy since 26 June 2012) and our price target from 300p to 200p until there is more clarity on the findings of the review and on management,' he added.

Shares in the group closed at 204p on Monday, down 41p or 16.73%.

Key stats
Market capitalisation£45,348m
No. of shares out2,509m
No. of shares floating2,492m
No. of common shareholdersnot stated
No. of employees27483
Trading volume (10 day avg.)4m
Profit before tax£1,953m
Earnings per share77.84p
Cashflow per share97.05p
Cash per share42.94p

*Correct as at 12 Nov 2012

Shore Capital backs Diageo's Indian acquisition

Phil Carroll, analyst at Shore Capital, has reiterated his 'buy' recommendation on global drinks giant Diageo (DGE.L) following Friday's announcement that it has finally reached an agreement to buy a stake of Indian drinks maker United Spirits.

In a complex deal, Diageo will gain an initial 27.4% of the business for £660 million, and could take up to 53.4% if exisiting shareholders agree to sell their holding to the company. The amount Diageo will pay represents a 35% premium on United Spirits' closing price the day before the deal, and shares in the Indian company leapt on the news.

The deal was thrown into doubt last month after Vijay Mallya, the owner of United Spirits' parent company, said he was 'under no compulsion whatsoever' to sell the stake to keep his debt-laden Kingfisher Airlines afloat.

Although Carroll said Diageo hadn't got its stake in the Indian company on the cheap, the move makes strategic sense: 'We see Diageo taking a stake in USL as part of the long-game and USL’s growth potential not including any changes to the current import excise duty regime in India looks very attractive alone but should the latter change, which we expect it will in time, then the valuation might be look like good value in time.'

Shares in the group closed at £18 on Monday, down 3p or 0.17%.

Key stats
Market capitalisation£1,859m
No. of shares out815m
No. of shares floating811m
No. of common shareholdersnot stated
No. of employees20959
Trading volume (10 day avg.)2m
Profit before tax£104m
Earnings per share12.78p
Cashflow per share21.25p
Cash per share32.37p

*Correct as at 12 Nov 2012

UBS downgrades Invensys as US suitor backs off

Stephen Swanton, analyst at UBS, has downgraded industrial technology specialist Invensys (ISYS.L) from 'buy' to 'neutral' ahead of Thursday's first-half results after potential US suitor Emerson hinted that it's losing interest.

During a recent results conference call an Emerson spokesperson said the company is targeting deals in the order of $500 million ballpark rather than bigger deals - by implication putting Invensys off the agenda.

Swanton noted that valuing Invensys is extremely difficult given the possibility of a takeover plus uncertainty surrounding the financing of its pension scheme.

However, overall he said consensus expectations look stretched. 'Consensus assumptions for organic growth across the businesses look too high, even if Invensys Operations Manager (IOM) and Rail are served by decent backlogs.

'We suspect some of the spot businesses at Invensys’ will be pressured by weaker industrial demand (eg, IOM equipment) and it makes us think our growth assumptions are more realistic than consensus,' he said.

Shares in the group closed at 221.3p on Monday, down 13.4p or 5.71%.

Key stats
Market capitalisation£1,675m
No. of shares out361m
No. of shares floating335m
No. of common shareholdersnot stated
No. of employees1827
Trading volume (10 day avg.)1m
Turnover2,437m USD
Profit before tax24m USD
Earnings per share0.07 USD
Cashflow per share0.10 USD
Cash per share3.76 USD

*Correct as at 12 Nov 2012

Peel Hunt downgrades Catlin on superstorm Sandy liability

Mark Williamson, analyst at Peel Hunt, has downgraded specialist property and casualty insurer Catlin (CGL.L) from 'buy' to 'hold', warning that the destruction caused by superstorm Sandy in the US has severely hampered the chances of any earnings upgrades.

Catlin issued a quarterly trading update yesterday, which showed gross premiums written up 11% over the past nine months. The average weighted premium rate rose 5% over the same period, and underlying growth came in at 8%, in line with the analyst's expectations.

Williamson noted that the results don't yet reflect claims from Sandy. 'Post the period-end the east coast of the US, and New York state in particular, was hit by superstorm Sandy. At present it remains too early to provide an accurate assessment of losses.'

Before the storm hit Williamson believed there was potential for the group's earnings to come in ahead of his forecasts, but that now looks to have been swept away. 'The prospects of earnings upgrades now appear much diminished following superstorm Sandy, and Catlin is unlikely to return capital beyond its ordinary dividend. Consequently, we are downgrading our recommendation from Buy to Hold,' he said.

Catlin features in the JOHCM UK Equity Income fund, run by Citywire A-rated Clive Beagles and James Lowen.

Shares in the group closed at 460.4p on Monday, up 2.3p or 0.5%.

Key stats
Market capitalisation£1,339m
No. of shares out68m
No. of shares floating67m
No. of common shareholdersnot stated
No. of employees1055
Trading volume (10 day avg.)0m
Profit before tax£40m
Earnings per share58.73p
Cashflow per share66.97p
Cash per share72.01p

*Correct as at 12 Nov 2012

Canaccord lifts target price for Aveva

Jonathan Imlah, analyst at Canaccord, has increased his target price for engineering software maker Aveva (AVV.L) following a solid second-half performance.

In the six months to the end of September revenue growth across all regions hit 15% year-on-year. The pre-tax profit margin fell somewhat from 30.6% a year ago to 29.4% - still 'very healthy', Imlah said. Pre-tax profits were up 8% to £25.8 million.

'This is another solid set of results from Aveva in a period in which the company celebrated its 45 year anniversary,' the analyst said.

'Aveva trades at just under 24x March 2014 earnings and 13.4x enterprise value/earnings for the same year. It is our view that the combination of a world leading competitive position, high quality management team, close to 70% recurring revenues and double-digit organic growth warrant a premium valuation.'

Imlah's target price has increased 45% to £20.

Shares in the group closed at £20.15 on Monday, up 14p or 0.7%.

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  • Catlin Group Ltd (CGL.L)
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  • Victoria PLC (VCP.L)
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  • Diageo PLC (DGE.L)
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  • Invensys PLC (ISYS.L)
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