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