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Expert View: RSA, Homeserve, MJ Gleeson and ICAP
on Feb 06, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary.
Our daily round-up of analyst recommendations and commentary, featuring RSA, Ryanair, Homeserve, MJ Gleeson and ICAP.
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Barclays upgrades RSA on Hester appointment
The appointment of former RBS boss Stephen Hester as the new chief executive of RSA (RSA.L) has led Barclays to upgrade the stock from ‘underweight’ to ‘equal weight’.
Analyst Andy Broadfield placed a target price of 99p on the shares, which have been hit by a series of profit warnings and an accounting scandal in Ireland.
Broadfield said Hester’s appointment had a ‘track record of tackling challenging restructuring stories’.
‘In addition the company is set to announce the conclusion of its strategic review on 27 February, when management will give clear guidance on how it intends to rebuild its balance sheet and what actions it can take to offset any consequent earnings dilution,’ he said.
‘Although our base case continues to see little upside to our price target, we upgrade our rating to ‘equal weight’ to reflect the higher probability of a credible restructuring plan and the likely positive sentiment attached.’
To upgrade again Broadfield said he would need ‘evidence that the balance sheet can be restored with limited earnings dilution’.
Homeserve turns the ship around after FCA fine
The latest trading statement Homeserve (HSV.L) shows the emergency repairs business trading in line with expectations while ‘the tone around customer wins and retention…has improved’, according to Jefferies.
Analyst Will Kirkness retained a ‘hold’ on the stock with a 307p price target.
Although the company has had to increase its provision for a proposed £34.5 million fine from the Financial Conduct Authority for mis-selling and poor complaints handling, Kirkness said the tone of the UK business was improving.
‘The UK business is stated as trading in line with expectations but we understand all new marketing streams are performing well and customer numbers at the end of 2013 were 2.1 million (previous guidance 2 million) giving management ‘greater confidence’ the UK business will stabilise at a level of ‘at least 2 million’,’ he said.
Kirkness said overall the company offered ‘reasonable visibility’ and expectations were ‘comforting’.
Low-cost home plan cosy push Gleeson over 500p
Liberum expects shares in housebuilder MJ Gleeson (GLE.L) to ‘re-rate’ and surpass 500p over the next two years on the back of a new plan to build low-cost homes.
Analyst Charlie Campbell retained a ‘buy’ and placed a target price of 477p on the shares.
He said the group, which specialises in urban housing regeneration, was on track to build 1,000 homes a year.
‘We believe that Gleeson Homes’ new low-cost homes business will generate and maintain high returns as competition will remain limited,’ he said. ‘We believe that this business has the resources, and management has the track record to become a 1,000 unit per annum builder. Delivery should ensure the shares reach over 500p on a two year view.’
Campbell added that the margins on low-cost housing ‘appear high and sustainable’ while the low cost of building the homes would ensure fast growth and ‘excellent returns’.
‘Glamorous industries attract and retain too much competition. Low cost homes supply is the opposite limiting competition and keeping returns high for incumbents.’
ICAP’s cost saving plans keeps it a ‘buy’
Interdealer broker ICAP (IAP.L) may have put out disappointing interims but Shore Capital believes the company is evolving in a ‘favourable manner’.
Analyst Gary Greenwood retained a ‘buy’ recommendation and placed a target price of 389p on the shares after interims revealed a 6% fall in revenue and forecast a ‘headwind’ from currency movements.
However, the company’s ongoing cost-saving programme has meant it has offset the revenue decline and profits before tax are slightly ahead of last year.
‘We believe the company’s business mix is evolving in a favourable manner with a shift in emphasis towards higher margin and more valuable, in our view, electronic and post trade business lines,’ said Greenwood.
‘The company also expects to deliver significant cost savings of £80 million to £120 million by the end of 2016.’