Expert View: Tesco, Craneware, Spirent, Rentokil & Lloyds
A roundup of analyst recommendations and comments, including Tesco's reported interest in Mothercare.
Tesco: a Mothercare tie-up more likely than a takeover
Rumours that Tesco (TSCO.L) is planning a takeover of Mothercare has led analysts at Shore Capital to speculate the supermarket giant is looking for potential retail tie-ups.
Analyst Clive Black retained a ‘hold’ recommendation on the shares and a target price of 331p as The Sunday Times reported that Tesco is planning a ‘surprise swoop of Mothercare’.
Black said he was ‘surprised’ by the news as Tesco has ‘spent much time recently talking about sweating its existing assets, capital discipline and stronger solvency ratios’.
He suggested it was more likely ‘to see Tesco associated with other potential tie-ups in the future as the retailer goes through the gears of making its large store estate more interesting as destination centres’.
Black added that Tesco ‘was seeking to change for the better’ but there would be ‘no quick fix and pressures persist in stimulating positive trading momentum at home and abroad’.
Shares in Mothercare (MTC.L) jumped 17p or 6.25% to close yesterday at 289p while Tesco softened 1.5p or 0.45% to 329.6p.
Craneware to benefit from tech reliance in US healthcare
Craneware (CRW.L), the provider of software to US hospitals, is set to benefit from the healthcare trend for consumerisation across the Atlantic.
Investec analyst Roger Phillips maintained a ‘buy’ recommendation on the shares and a target price of 615p.
While forecasts for the full-year results of 2015 and 2016 are ‘conservatively set’ Phillips said an interim trading update last week reflected ‘improving long-term financials’ and ‘industry drivers remain compelling and in favour of the group’s product set’.
Phillips said Experian’s acquisition of Passport Health, which chases late medical bill payments in the US, at the end of last year showed ‘the attraction of the US healthcare trend of consumerisation’, or using technology to help healthcare workers increase their efficiency.
‘Our conclusion is that the outlook for revenue integrity solutions remains healthy and supports an eventual return to double digit organic growth,’ he said. ‘In particular, we see the trend towards consumerisation as pivotal in diving Craneware product demand.’
Craneware slipped 7.5p of 1.3% to close at 552.5p.
Spirent upgraded to ‘add’ on back of 4G investment
Telecoms testing company Spirent (SPT.L) has been upgraded to ‘add’ from a ‘hold’ recommendation despite a need for more investment in research and development this year.
The reason for Numis analyst Nick James’ optimism is the successful investment into 4G mobile networks in the US that will precede a global roll-out that will improve the ‘general health of the network equipment industry, which should benefit Spirent’.
James placed a target price of 105p on the shares.
‘The board, led by new CEO Eric Hutchinson, is implementing senior management and structural changes,’ said James. ‘This involves acceleration in development in a number of areas (eg. Virtual test systems, software defined networking solutions…cyber security testing). This will require increased investment in R&D and sales costs in 2014. Selective acquisitions will also be sought.’Spirent shares firmed 0.4p or 0.5% to close at 94.4p.
Rentokil restructuring fails to please Peel Hunt analysts
Analysts Peel Hunt have reduced their forecasts for 2014 profits before tax for pest controller Rentokil (RTO.L) as concerns remain despite a major restructure.
Christopher Bamberry retained a ‘sell’ recommendation and placed a target price of 108p on the shares.
Bamberry’s concerns focus on the consistency of the company revenue growth. Even though the shares are trading in line with the sector, he believes there are better rewards elsewhere.
‘As Rentokill approaches the end of its major restructuring and investment programme, we remain concerned about its ability to generate sustainable and consistent organic revenue growth,’ he said.
‘In our opinion this, combined with the consistent earnings downgrades and the business’s conglomerate structure, limit the likelihood of a further equity re-rating.’
Rentokil firmed 0.35p or 0.3% to 123.2p.
Lloyds’ dividends could be thin on the ground, says Jefferies
Lloyds (LLOY.L) remains a ‘hold’ for Jefferies analysts, who stated that the risk/reward offering from the bank is not currently attractive.
Analyst Joseph Dickerson placed a target price of 69p on the shares and said while there was some ‘normalisation hope’, future dividends on common shares may come up thin.
‘We believe a return to dividends on common shares may be attenuated relative to consensus expectation,’ he said, also downgrading pre-tax earning estimates by 5% in both 2014 and 2015.
Dickerson said risks to the bank came from regulation and macroeconomic policies.
‘To gain confidence around stability of future dividend payments, Lloyds must narrow the gap between ‘underlying’ profit (e.g. before ‘one-offs’) and statutory profit,’ said Dickerson. ‘Minimising conduct redress is key to narrowing this gap.’
Lloyds shares closed 0.3p down at 83.2p.