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Expert View: RSA, Homeserve, MJ Gleeson and ICAP

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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Key stats
Market capitalisation£3,798m
No. of shares out3,682m
No. of shares floating3,672m
No. of common shareholdersnot stated
No. of employees23824
Trading volume (10 day avg.)20m
Turnover£8,842m
Profit before tax£335m
Earnings per share9.37p
Cashflow per share13.78p
Cash per share36.96p

*Correct as at 5 Feb 2014

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’.

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Key stats
Market capitalisation£1,052m
No. of shares out330m
No. of shares floating278m
No. of common shareholdersnot stated
No. of employees4062
Trading volume (10 day avg.)0m
Turnover£547m
Profit before tax£42m
Earnings per share12.70p
Cashflow per share22.67p
Cash per share27.30p

*Correct as at 5 Feb 2014

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’.

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Key stats
Market capitalisation£216m
No. of shares out53m
No. of shares floating36m
No. of common shareholdersnot stated
No. of employees201
Trading volume (10 day avg.)0m
Turnover£61m
Profit before tax£10m
Earnings per share18.94p
Cashflow per share20.06p
Cash per share18.79p

*Correct as at 5 Feb 2014

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.’

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Key stats
Market capitalisation£2,523m
No. of shares out648m
No. of shares floating529m
No. of common shareholdersnot stated
No. of employees4976
Trading volume (10 day avg.)1m
Turnover£1,472m
Profit before tax£43m
Earnings per share6.62p
Cashflow per share20.31p
Cash per share93.16p

*Correct as at 5 Feb 2014

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.’

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