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Expert View: ASOS, Sainsbury's & Speedy Hire

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by Michelle McGagh on Mar 19, 2014 at 05:01

Analysts react to yesterday's disappointing news from Sainsbury's, ASOS and Speedy Hire plus comments on Tate & Lyle and Mears Group.

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Key stats
Market capitalisation£4,730m
No. of shares out83m
No. of shares floating51m
No. of common shareholdersnot stated
No. of employees1164
Trading volume (10 day avg.)0m
Profit before tax£41m
Earnings per share49.24p
Cashflow per share65.46p
Cash per share86.15p

*Correct as at 18 Mar 2014

Cantor cuts ASOS price after investment warning

Cantor reduced its target price for ASOS (ASC.L) after shares in the online retailer plunged to a five-year low.

Having doubled in the past year ASOS shares dived 17% after the company's first quarter trading statement missed expectations and carried a committment to invest more rapidly in infrastructure at the expense of short-term profits.

Analyst Freddie George retained a ‘hold’ recommendation but reduced the target price from £72.00 to £64.00‘We are for the time being reducing our FY14 pre-tax profit forecast from £69 million to £64 million taking earnings per share down from 60.3p to 55.9p,’ said George. ‘For FY15 we are downgrading our pre-tax profit forecast from £88 million to £85 million.’

He added that the company will now focus on a limited number of markets ‘with a view to making them as significant as the UK rather than taking a scatter gun approach to global expansion’.

The group is also looking to ‘exploit the middle age market, keeping the ASOS brand focused on the under-30s’.

Key stats
Market capitalisation£5,987m
No. of shares out1,902m
No. of shares floating1,734m
No. of common shareholdersnot stated
No. of employees49100
Trading volume (10 day avg.)14m
Profit before tax£602m
Earnings per share31.47p
Cashflow per share57.44p
Cash per share27.31p

*Correct as at 18 Mar 2014

Sainsbury’s downgraded as sales growth comes to an end

Sainsbury’s (SBRY.L) nine-year stretch of quarterly sales growth came to an ‘abrupt end’ in Q4, leading Shore Capital to downgrade it from ‘buy’ to ‘hold’.

Analyst Clive Black said: ‘Sainsbury’s long-standing record of positive like-for-like sales has come to an abrupt end with its Q4 2013/14 trading update that is a little worse than our downbeat expectations.

‘Such a performance will be a particular disappointment to outgoing CEO Justin King and perhaps more of a concern and worry to his replacement, Mike Coupe, and the group’s shareholders.’

Black said while Sainsbury’s has matched Tesco’s recent milk price cuts said he would be 'interested to see how Sainsbury’s approaches the greater discount challenge’.

‘While it is not losing out to the same extent as its peers, we do not believe that Sainsbury’s is blind to the challenge.’

The supermarket sector is still reeling after the pledge from Morrisons (MRW.L) last week to spend £1 billion in a price war to fend off discounters such as Aldi and Lidl. Sainsbury's closed 0.8% or 2.5p higher at 313.9p.

Key stats
Market capitalisation£335m
No. of shares out518m
No. of shares floating504m
No. of common shareholdersnot stated
No. of employees3776
Trading volume (10 day avg.)2m
Profit before tax£9m
Earnings per share1.70p
Cashflow per share12.04p
Cash per share0.04p

*Correct as at 18 Mar 2014

Speedy hits a bump in the road

Plant hire group Speedy Hire (SDY.L) has been downgraded by Liberum after a profits warning.

David Brockton, Liberum analyst, lowered the stock from ‘buy’ to ‘hold’ but maintained the target price of 79p.

‘Speedy now expects full-year profit of c.£14.5 million, c.20% below our forecast,’ he said. ‘The downgrade is due to a combination of lower asset sales (£2m), Middle East trading losses (£0.5m) and lower hire revenues in the UK (£1m).

‘While the outturn for FY14 is less relevant for the investment case, given the specific nature of setbacks, a slower pace of recovery in the UK allied with the recent share price strength…prompts us to downgrade to ‘hold’.’ The shares closed 12.5p or 16% down at 64.5p.

Key stats
Market capitalisation£2,970m
No. of shares out466m
No. of shares floating460m
No. of common shareholdersnot stated
No. of employees4322
Trading volume (10 day avg.)2m
Profit before tax£254m
Earnings per share53.64p
Cashflow per share76.66p
Cash per share81.27p

*Correct as at 18 Mar 2014

Sucralose price war not such a bitter pill for Tate & Lyle

Tate & Lyle (TATE.L) has been hit by a fall in the cost of sucralose, which makes up its Splenda sweetener, as Chinese contenders come to market but Jefferies believes this could present a buying opportunity.

A swathe of generic sucralose coming from China will hit profits at Tate as the cost of sweetener is driven down. However, analyst Martin Deboo retained a ‘buy’ recommendation but reduced the target price from 900p to 730p, on the basis that Splenda makes up less than 20% of Tate’s business.

‘The shares are off 20% following February’s sucralose warning [which makes up the company’s Splenda sweetener],’ he said. ‘So, is this the end of the affair or a buying opportunity? We think the latter, albeit with no need to rush. Chinese generics look set to make trouble and risks to the FY15 consensus are on the downside for us.’ The shares closed yesterday half a penny higher at 637.5p.

Key stats
Market capitalisation£496m
No. of shares out101m
No. of shares floating99m
No. of common shareholdersnot stated
No. of employees11441
Trading volume (10 day avg.)0m
Profit before tax£20m
Earnings per share21.41p
Cashflow per share34.79p
Cash per share62.72p

*Correct as at 18 Mar 2014

Mears’ share price running high, but justified

Social housing maintenance and repairs business Mears Group (MER.L) has brought home another record set of full-year results, leading Investec to reiterate its ‘add’ recommendation.

Analyst Andrew Gibb placed a target price of 520p on the shares following 2013 results that showed revenues were up 32% and profits before tax up 28%.

‘The performance of social housing was again the main driver of growth, with the margin comfortably ahead of expectations,’ he said. ‘The shares have run strongly over the past year and…are towards the top of the ratings table in the outsourcing space. However with near double-digit organic growth potential in social housing, we believe this premium rating can be justified.’

The shares closed yesterday 8.75p or 1.75% down at 492p.

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