Daisy (DAY) has over the last five years transformed into a cash generative business ‘with scale, breadth and focus that are unrivalled in the small and medium-sized enterprises telecoms market’ according to Liberum.
However, the analysts believe that transformation is not yet complete, and are looking forward to an improvement in organic growth as the company gets better at cross-selling. Daisy has also proved adept at buying well, and Liberum expects this to continue.
‘Management have built up an excellent track record of adding value through acquisitions both in growing scale, diversifying into more attractive areas and in extracting synergies,’ said analyst William Shirley. ‘We expect this to continue and believe that there is a strong pipeline of opportunities.’
However, Shirley did not rule out Daisy becoming a bid target itself. ‘Although takeover speculation has died down since it was reported that Daisy had been in talks with Liberty Global and Vodafone we continue to believe that Daisy would make an attractive target with very high synergies to a network buyer,’ he said.
Liberum has a target price of 215p on the shares, which were trading at 142p at Friday’s close.
Liberum is encouraged by the performance of Isle of Man telecommunications group Manx Telecom (MANX) since its initial public offering in February this year.
Despite a number of IPO disappointments this year trading of Manx ‘has remained robust and there have been no surprises’, said Liberum.
The analysts said they were encouraged by the performance of the company’s business off the island, and its imminent launch of 4G services ahead of its rival Sure.
‘Manx is cash generative, has a sector leading 6% yield and a consistent track record of delivering positive organic sales growth,’ Liberum said.
It added Manx remained on track to launch 4G services by the end of the summer, giving it a significant first mover advantage over Sure. ‘Sure’s recent request to have their launch date moved back from 17 July 2014 to 31 May 2015 suggests there may be a period where Manx has an uncontested 4G offering,’ it said.
Liberum has a target price of 180p on the shares, which were trading at 170p on Friday’s close.
Oil explorer Circle Oil (COPU) is poised to reap the benefits of its development work in Egypt, as investors continue to discount the stock too heavily due to perceived risks of its operations in the country, according to Liberum.
Liberum has a target price of 45p on the shares, which were trading at 22p at Friday’s close.
‘The Egyptian development is close to completion and should enable Circle to benefit from strong operating cash flow while capital expenditure falls – we estimate that it will generate more than $300 million of post-tax cash flow over 2014-18,’ it said.
‘We believe the share price is over-discounting Egyptian risk and fails to recognise Circle’s capacity to invest for growth both within existing countries and others in the region.’
Liberum is forecasting 32% net asset value (NAV) growth over the next three years for property investment group Conygar (CIC) due to the strength of its development pipeline.
It said it had calculated a 94p upside to the group’s NAV, which is not yet reflecting progress made on its developments in Wales, which are expected to yield more than 2,000 residential units, 1,200 marina berths and more than 400,000 square feet of commercial floorspace.
‘Conygar trades at a 3% discount to its last reported NAV, which gives no credit to progress to date in the development pipeline,’ Liberum said.
Liberum has a target price of 200p on the shares, which were trading at 170p on Friday’s close.
Private equity group Oakley Capital (OCL) is emerging from a busy 2013 and Liberum is backing it to continue to perform well.
Oakley, which backed Neil Woodford as he set up his new asset management group, has an investment strategy that has impressed Liberum analysts Rob Jones and Conor Finn.
‘Unlike the more diversified, predominantly mid-market buyout vehicles within the listed fund arena, Oakley’s strategy is one of operational turnaround, consolidation and provision of deployment capital,’ they said.
‘When measured over the time period since Oakley Capital’s IPO [in August 2007], the fund has a sector-leading performance among direct private equity peers on a net asset value (NAV) total return basis. We believe this fact is often overlooked by the market, especially regarding the portfolio’s resilience during the depth of the global financial crisis, when many funds who had invested heavily in companies at peak valuations suffered NAV declines.’
Liberum has a target price of 200p on the shares, which were trading at 161p on Friday’s close.
Liberum believes Staffline (STAF) is set for ‘turbocharged growth’ after the recruitment services provider’s acquisition of Avanta, the UK’s leading provider of Welfare to Work contracts and training services.
‘The brand, skills and scale that it brings will significantly improve Staffline’s bidding prospects on future contracts (not assumed in forecasts); the valuation (five times prospective earnings before interest and tax) is very undemanding and the deal is immediately earnings enhancing,’ said analyst William Shirley.
He said the potential for new contract wins offered substantial upside to earnings, and that concerns over the impact of the election, or ‘Miliband meddling’ could create the opportunity to buy at a ‘compelling valuation’.
‘Political commentary around the election will… create uncertainty. However, all political parties are supportive of outsourced Welfare to Work in principal (albeit the name and delivery mechanism are subject to debate).’
Liberum has a target price of 966p on the shares, which were trading at 891p at yesterday’s close.
Vertu Motors (VTU) has an excellent risk/reward profile due to the car dealership’s strong balance sheet and high operational gearing, according to Liberum.
Analysts Sanjay Vidyarthi and Adam Tomlinson believe its margin on earnings before interest and tax can rise from 0.7% in 2013 to 1.1% in 2015, and that a 1.5% to 2% level is possible in the medium term before any future acquisitions.
The pointed to balance sheet strength, with estimated net cash of £24 million in 2015, and highlighted the quality of the management team.
‘Excellent management team (many are ex-Reg Vardy, which was best in class) with a track record of under-promising and over-delivering,’ they said.
Liberum has a target price of 85p on the shares, which were trading at 53.5p at yesterday’s close.