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Expert View Special: Oriel’s stock picks for 2014

Here are seven shares that analysts at Oriel are tipping for the year ahead.

In a special edition of The Expert View, we’re taking a look at some of Oriel Securities’ top picks for the year ahead.

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Key stats
Market capitalisation£30,385m
No. of shares out7,911m
No. of shares floating7,814m
No. of common shareholdersnot stated
No. of employees87900
Trading volume (10 day avg.)9m
Turnover£18,017m
Profit before tax£2,091m
Earnings per share25.49p
Cashflow per share60.15p
Cash per share17.30p

*Correct as at 13 Jan 2014

BT set to blow competition out of the water

Oriel has placed a target price of 475p on telecoms behemoth BT (BT.L) but predicted that the shares could soar much higher as the company wins back more of the market.

Analyst John Karidis said: ‘Our BT target is 475p, but we can see our way to greater than 600p per share.’

He added that there would be ‘little risk of an arms race’ for content rights when it came to TV programming as BT had 2.5 times the cash flow of competitor BskyB.

Away from the consumer side, BT is set to benefit from economic recovery, ‘improving execution’ and a new 4G spectrum ‘to outclass many of its rivals’, said Karidis.

He also expected BT’s pension liabilities to be less of a burden and ‘the next triennial pension valuation (14 June) should not need to keep a ‘prudence margin’ of £6 billion+ (included in the June 2011 valuation).’

BT shares closed up 0.37%, or 1.4p, on Monday at 384p.

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Key stats
Market capitalisation£1,841m
No. of shares out3,656m
No. of shares floating3,616m
No. of common shareholdersnot stated
No. of employees35323
Trading volume (10 day avg.)11m
Turnover£8,439m
Profit before tax£-158m
Earnings per share-4.37p
Cashflow per share-0.83p
Cash per share11.23p

*Correct as at 13 Jan 2014

Dixons aspires to join the ‘dividend club’

Electrical retailer Dixons (DXNS.L) will be given a boost in 2014 from downsizing stores, collaborations and even the World Cup.

Alistair Davies, Oriel analyst, said he had high expectations that Dixons’ management ‘can continue the recovery story within the UK and manage investment headwinds within Northern Europe’.

He noted the downsizing to 400 stores, collaborations with suppliers for fit-outs and staff training, World Cup buzz and increasing purchase of white goods as more people purchase their own home would help the company improve earnings.

Over the period to the end of 2016, Davies expects Dixons to increase earnings by 6% more than earlier forecasted as well as pay £100 million of bonds due in 2015.

A dividend could be forthcoming too after a five year hiatus.

‘Expectations are for returns to shareholders to begin in H2 FY 15 with management keen to emphasise a focus on returns for equity holders and stating that the dividend list is a ‘club they would like to be a part of’,’ he said.

Dixons shares closed 0.7%, or 0.35p, on Monday at 50.3p.

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Key stats
Market capitalisation£1,576m
No. of shares out283m
No. of shares floating164m
No. of common shareholdersnot stated
No. of employees3254
Trading volume (10 day avg.)0m
Turnover£785m
Profit before tax£79m
Earnings per share28.45p
Cashflow per share35.26p
Cash per share21.63p

*Correct as at 13 Jan 2014

Larger garments are big business for N Brown Group

Internet and catalogue retailer N Brown Group (BWNG.L) is taking advantage of its position as seller of larger garments for men and women.

The owner of Simply Be, Jacamo and Figleaves, is ‘evolving rapidly’ according to analyst Jonathan Pritchard.

‘Over the past 18 months, customer recruitment has been very strong, due to better targeting on the web, stronger advertising in general, and a controlled and small easing of credit terms,’ said Pritchard. ‘This has a short term dilutive impact on margins but shoppers quickly become highly profitable, moving their credit balances from £100 to an average of £380 within three years.’

Pritchard also praised the new chief executive Angela Spindle as ‘an experienced clothing retailer’ who ‘will improve the ranging, sourcing and merchandising of the product’.

Although he mentioned that Christmas had been tough for all clothing retailers ‘N Brown is especially well placed not only to weather this short term storm, but to grow earnings rapidly in the medium term as well’.

N Brown Group shares closed down 1.79%, or 10p, on Monday at 550p.

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Key stats
Market capitalisation£2,082m
No. of shares out944m
No. of shares floating619m
No. of common shareholdersnot stated
No. of employees7138
Trading volume (10 day avg.)0m
Turnover£1,244m
Profit before tax£71m
Earnings per share7.50p
Cashflow per share14.80p
Cash per share14.05p

*Correct as at 13 Jan 2014

Regus keeps it simple

Office rental company Regus (RGU.L) may ‘screen poorly’ due to its simple business model but Oriel expects the company to gain from investment in new sites this year.

Analyst Hector Forsythe said investment costs pass through Regus’ profit and loss accounts meaning ’accelerating growth weakens near-term profitability’ and the company ’screens poorly’ but added that ‘it is value creation that matters’.

‘This is a group that has a single core business – the provision of flexible office space – operating from over 1,700 centres,’ he said. ‘We calculate that a new location brings net present value of £0.7 million. We expect over 300 to be added this year. And we estimate that on average each existing location has a net present value of £0.9 million.’

Given these assumption he has a 300p target price for the shares, but lower capital costs could push the price to 400p.

Regus shares closed up 0.45%, or 1p, on Monday at 222p.

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Key stats
Market capitalisation£3,871m
No. of shares out515m
No. of shares floating504m
No. of common shareholdersnot stated
No. of employees854
Trading volume (10 day avg.)1m
Turnover£4,260m
Profit before tax£107m
Earnings per share21.16p
Cashflow per share21.61p
Cash per share607.72p

*Correct as at 13 Jan 2014

Better economy and new regulation boost St James’s Place

Oriel’s key life assurance pick is wealth management firm St James’s Place (STJ.L), which it marks out for the strongest dividend growth in the sector.

Marcus Barnard said: ‘St James’s Place remains our key pick in among the life assurers, combining high growth, strong profitability and increasing cash conversion, combining to give the strongest dividend growth (50%) in the sector.’

He expects to see increased recruitment in its tied salesforce and productivity to be boosted by rising equity markets, low savings rates and an improving economy.

St James’s has also benefited from new ‘retail distribution review’ (RDR) rules which have seen a decrease in a number of independent financial advisers meaning the firm’s tied ‘partners’ are finding it easy to get clients.

‘The company expects to see a 15-20% growth in new business, which along with modest equity market progression should see group assets under management increase at 15% a year and double over the next five years,’ said Barnard.

He predicted the shares will reach 800p.

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Key stats
Market capitalisation£2,640m
No. of shares out1,459m
No. of shares floating1,432m
No. of common shareholdersnot stated
No. of employees33593
Trading volume (10 day avg.)7m
Turnover£9,315m
Profit before tax£-199m
Earnings per share-16.67p
Cashflow per share1.42p
Cash per share74.91p

*Correct as at 13 Jan 2014

Good start for Thomas Cook, more to follow

Holiday company Thomas Cook (TCG.L) has already benefitted from new management and a cost reduction plan but analyst Jeffery Harwood still thinks ‘there is further upside to come’.

Harwood has placed a target price of 197p on the shares.

‘There is clearly good upside from the initial cost reduction programme where a further £246 million of improvements are planned over the next two years,’ he said. ‘In addition we expect the second stage cost reduction/ profit improvement programme to be unveiled in May, likely to be around £440 million.’

Harwood noted that shares rose strongly in 2012 and the ‘risk profile’ of the business changed after its £400 million share issue last year. The aim is to ‘move into a zero net debt position by September 2015’.

Thomas Cook shares closed down 1.04%, or 1.9p, on Monday at 180p.

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Key stats
Market capitalisation£758m
No. of shares out133m
No. of shares floating132m
No. of common shareholdersnot stated
No. of employees2757
Trading volume (10 day avg.)0m
Turnover£610m
Profit before tax£-7m
Earnings per share-5.52p
Cashflow per share119.75p
Cash per share11.23p

*Correct as at 13 Jan 2014

Northgate steps up a gear in 2014

Vehicle rental firm Northgate (NTG.L) will benefit not only from an increase in self-drive vans but also from ‘cyclical growth’ in the market.

Analyst Hector Forsythe expects Northgate to expand 10% for ‘each of the next few years’ as it finally benefits from investment in sales and a reorganisation.

‘[Northgate is] at the confluence of self-help organic growth and cyclical growth,’ he said. ‘Fundamentally, van rental demand is a play on economic activity. Northgate is delivering accretive growth in the UK from network expansion, in the order of 10% for each of the next few years, and starting to show a return on investment in sales and internal reorganisation.’

He added that ‘returns have the opportunity to exceed expectations’.

Northgate shares closed up 1%, or 6p, on Monday at 569p.

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