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Expert View Special: Barclays’ top share tips for 2014
by Michelle McGagh on Dec 11, 2013 at 05:01
Here are the UK stocks Barclays Capital analysts are tipping for the year ahead.
Barclays has revealed its top stock picks for 2014. In this Expert View Special we focus on the bank’s top picks in the FTSE 250. Of blue chips, Barclays tips BHP Billiton, British American Tobacco, Shell, London Stock Exchange Group, Prudential, Wolseley, William Hill, and BT.
A strong property market has led property manager Capital & Counties Properties to a bumper year and the gains will continue over the next 12 months, say Barclays.
The owner of Covent Garden has seen rental values increase from £33 million in 2009 to £56 million in the first half of 2013 and expected to hit £78 million in 2014.
Analyst Aaron Guy put a target price of £5.08 on the shares ‘meaning our base case implies more than 50% potential upside, even after the 40% share price gains achieved [in the] year to date’.
The strength of the company lies in its ownership of Covent Garden and Earls Court and a positive UK property market.
‘We expect these supportive market conditions to continue and for management-driven initiatives to crystallise value,’ said Guy. ‘At Covent Garden we estimate the asset value should double as management continues to reposition the tenant offering, raising rents.’
C&C shares fell 1% on Tuesday, to 329p.
The growing middle classes in the Middle East and North African markets will help drive business for Hikma Pharmaceuticals.
Barclays analyst Simon Mather, who has placed a target price of £12.70 on the shares, said: ‘The synergistic combination of high barriers to entry in the industry and a solid reputation amidst a quality-driven population position Hikma to disproportionately benefit from the growing middle class.’
He added that the company’s increasing specialisms will ‘provide margin expansion opportunities’ and product launches due next year will increase growth, possibly culminating in a merger or acquisition.
‘With its strong cash flow generation we see an increased likelihood of near term M&A, in line with management’s acquisition policy.’
Shares in Hikma dropped 0.5% yesterday, too £11.75.
Rotork, the maker of valves for the oil industry, is expected to continue its decade-long run of steady sales growth.
Analysts Nick Webster and Richard Paige have placed a target price of £33.15 on the shares, expecting it to continue its average sales growth of 11%, which it has delivered for the past 10 years compared to a sector average of 4%.
‘It is an asset-light, highly cash-generative business,’ said the analysts. ‘It has distributed nearly £300 million in dividends by means of a regular core and additional special dividend payments. We believe this justified Rotork’s premium valuation.’Barclays added that Rotork is a dominant player in an industry with high barriers to entry, and there is a ‘low emerging market threat’, where it has a significant share of the market.
‘Rotork’s premium valuation is justified by its market leading positions, record of superior earnings growth and strong cash generation.’
Rotork dropped 0.2% to £26.79 in Tuesday trade.
Housebuilder Barratt Developments is another company benefitting from the strong housing market and government initiatives to increase homeownership.
Analyst Jon Bell predicted Barratt will ‘enjoy the highest earnings per share growth in the sector in the next three years’ and has placed a target of £4.45 on the shares.
Barratt will continue to benefit from the Help to Buy scheme which has pushed up property prices and the ‘incidence of new (higher margin) land’.
‘Barratt has a national presence, including exposure to regional markets, where the Help to Buy scheme is contributing to an improvement in market conditions, and the London market, which remains robust,’ said Bell. ‘This is overlaid by an element of financial gearing, which serves to accelerate returns.’
Bell expects housing price inflation to offset rising build costs over the next year.
Barratt shares gained 1% to 342p yesterday.
A change of chief executive at Rentokil could lead to a beneficial change in strategy for the pest control group.
Analysts Jane Sparrow and Stephen Jefferey are predicting a slight uplift in the company’s share price in 2014 and have estimated a target price of 117p.
They said a disposal of ‘non-core activities’ and a focus on ‘organic growth’ alongside an improvement in cash generation would deliver improved earnings.
Sparrow and Jefferey said: ‘Rentokil is currently trading in line with its five-year average…but at a significant discount to the All Share.’
Although the challenge to the company is not to be underestimated there is also the ‘potential reward to executing successfully [a change in strategy]’.
Rentokil finished Tuesday up 0.5% at 110p.
The Restaurant Group has already been ‘adept’ at taking over sites from failed ventures, but 2014 will see it accelerate the number of openings as property companies build new retail sites.
The owner of 400 restaurants, including Frankie & Benny’s, Garfunkel’s, and Chiquitos, has already profited from the financial crisis and will use the next 12 months to increase the number of sites it operates.
Analyst Richard Taylor, who gave the stock a target price of £6.50, said the company has created an ‘unrivalled and hard-to-replicate competitive position’ thanks to its standing in leisure parks and airports in the UK.
‘The company has become adept at seeking out new site opportunities from failed peers and other retailers post the financial crisis, but we believe the next few years will see openings accelerate,’ said Taylor. ‘Property companies now have the confidence to build new sites again, allowing the company to accelerate its roll-out plans.’
Restaurant Group gained 0.5% in Tuesday trade, to close at 546p.
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Look up the shares
- Bhp Billiton PLC (BLT.L)
- British American Tobacco PLC (BATS.L)
- Royal Dutch Shell PLC (RDSb.L)
- London Stock Exchange Group PLC (LSE.L)
- Prudential PLC (PRU.L)
- Wolseley PLC (WOS.L)
- William Hill PLC (WMH.L)
- BT Group PLC (BT.L)
- Premier Oil PLC (PMO.L)
- Capital & Counties Properties PLC (CAPCC.L)
- Hikma Pharmaceuticals PLC (HIK.L)
- Rotork PLC (ROR.L)
- Barratt Developments PLC (BDEV.L)
- Rentokil Initial PLC (RTO.L)
- Restaurant Group PLC (RTN.L)