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The Expert View: Virgin Money, Entertainment One & Laird
Our daily round-up of analyst commentary on shares, including Stagecoach and Rightmove.
by Michelle McGagh on Mar 03, 2016 at 05:01
Investec: Virgin Money ‘under-appreciated growth story’
Virgin Money (VM) has bucked the trend for poor results in the banking sector by beating analysts' forecasts.
Investec analyst Ian Gordon retained his ‘buy’ recommendation and target price of 420p on the stock which floated in 2014.
‘After a miserable FTSE 100 bank results season in which every large bank missed market expectations, here come the UK challenger banks,’ he said.
‘Virgin Money’s results once again represent material outperformance versus consensus expectations – an 11% beat at the underlying profit before tax level – and, in our view, offer clear evidence of an under-appreciated and sustainable growth story.
‘Despite a lower-for-longer interest rate environment, the H2 2015 net interest margin of 1.65% was flat versus H1 2015 and ahead of guidance of 1.61%.’
Virgin Money shares gained 24p (7%) to 355p.
Peel Hunt downgrades Entertainment One after rally
Peel Hunt analyst Malcolm Morgan has cut Entertainment One (ETO) from a ‘buy’ to ‘add’ after this week’s rally in the TV and film distributor.
Shares in the company tumbled 23.6p (13.6%) to 149.4p yesterday, valuing the company at £640 million, after Morgan changed his recommendation but kept his 200p price target in response to its trading statement.
‘Overall trading is in line with the company’s expectations,’ he said. ‘Within this stable outlook is a weak film performance – prompting a reorganisation process and cost in full-year 2017 – offset by good TV and acquisition benefits. We will leave earnings per share for full year 2016/17 largely unchanged.
‘But debt will rise to £300 million by the year end versus £260 million previously…and will hit £330 million in 2017…The shares having rallied hard in advance of the update, now stand on 9.8x price/earnings ratio.’
In January Entertainment One faced a call from activist hedge fund Livermore Partners to slow down its pace of deal making and improve cash flow.
Laird diversifies from Apple core
Electronics components maker Laird (LRD) has diversified its revenues this year, mitigating its exposure to Apple, said Numis analyst Nick James.
James reiterated his ‘buy’ recommendation and target price of 440p on the stock following full-year results which sent the shares 22p (6.4%) higher to 365.4p
‘The headline full-year 2015 numbers were flagged with the trading update in January. Organic revenue grew 5% and earnings per share grew 14%,’ he said.
‘Laird enters 2016 with increased diversity of revenue and particularly strong exposure to structural trends in automotive. While there remains some cyclicality in exposure to Apple, in the short term this should turn with the second half iPhone7 launch and longer term should become less significant as growing segments like connected industrial and medical become more material.
James added: ‘We maintain full-year 2016 estimates of 5% organic revenue growth and 185 earnings per share growth with the benefit of acquisitions and foreign exchange movements.’
Jefferies upgrades ‘robust’ Rightmove
Jefferies analyst Anthony Codling has upgraded his recommendation for Rightmove (RMV) after the property search engine's full-year results last week.
The analyst lifted his rating from ‘underperform’ to ‘hold’ and increased his target price from £21.31 to £36.00 commenting: ‘Following another robust set of results we are upgrading our estimates for Rightmove and we move to a “hold” rating, the three reasons to hold being a sustainable ‘3%’ yield,’ he said.
‘Rightmove operates the most robust business model we have ever seen, it’s offering is increasingly seen as integral to the operations of its clients and home sellers expect to see their properties listed on the group’s websites. The group is focused on maintaining its dominant core advantage and defending its position against disrupters and believes that such are the untapped opportunities in the core that venturing into adjacent markets is not required,’ said Codling.
‘The rating on the shares would suggest that Rightmove is making the right decisions, but we see better value elsewhere in the sector,’ he added.
Rightmove shares retreated 72p (1.8%) to £39.97.
Liberum cautious on Stagecoach’s direction of travel
Bus and rail operator Stagecoach (SGC) is still struggling with deteriorating revenues across most of its divisions, said Liberum analyst Gerald Khoo.
Khoo retained his ‘sell’ recommendation and target price of 255p after the company released a trading statement.
‘Stagecoach’s latest update showed a further deterioration of revenue trends at most divisions,’ he said. ‘To be fair, these trends were flagged by management at the interim results in December, so the impact should already be largely reflected in current consensus estimates,' he commented.
‘Despite an optically attractive valuation, we remain cautious short term given the current trading challenges with the risks to estimates on the downside. Longer term, we remain concerned about re-regulation risk in UK regional bus and looming rail franchise renewals,’ Khoo added.
Stagecoach shares gained 3.3p (1.2%) to 277.3p
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Look up the shares
- Virgin Money Holdings (UK) PLC (VM.L)
- Entertainment One Ltd (ETO.L)
- Laird PLC (LRD.L)
- Stagecoach Group PLC (SGC.L)
- Rightmove PLC (RMV.L)