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Expert View: Tesco, Craneware, Spirent, Rentokil & Lloyds

A roundup of analyst recommendations and comments, including Tesco's reported interest in Mothercare. 

Our daily round-up of analyst recommendations and commentary, featuring Tesco, Craneware, Spirent, Rentokil and Lloyds

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Key stats
Market capitalisation£26,604m
No. of shares out8,085m
No. of shares floating8,069m
No. of common shareholdersnot stated
No. of employees537784
Trading volume (10 day avg.)22m
Turnover£64,826m
Profit before tax£1,390m
Earnings per share17.30p
Cashflow per share36.58p
Cash per share37.67p

*Correct as at 20 Jan 2014

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.

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Key stats
Market capitalisation£151m
No. of shares out27m
No. of shares floating19m
No. of common shareholdersnot stated
No. of employees198
Trading volume (10 day avg.)0m
Turnover25m USD
Profit before tax5m USD
Earnings per share0.19 USD
Cashflow per share0.22 USD
Cash per share0.68 USD

*Correct as at 20 Jan 2014

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.

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Key stats
Market capitalisation£584m
No. of shares out619m
No. of shares floating612m
No. of common shareholdersnot stated
No. of employees1545
Trading volume (10 day avg.)2m
Turnover288m USD
Profit before tax48m USD
Earnings per share0.07 USD
Cashflow per share0.09 USD
Cash per share0.23 USD

*Correct as at 20 Jan 2014

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.

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Key stats
Market capitalisation£2,229m
No. of shares out1,818m
No. of shares floating1,795m
No. of common shareholdersnot stated
No. of employees59519
Trading volume (10 day avg.)3m
Turnover£2,227m
Profit before tax£71m
Earnings per share3.91p
Cashflow per share15.30p
Cash per share8.40p

*Correct as at 20 Jan 2014

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.

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Key stats
Market capitalisation£118,806m
No. of shares out142,736m
No. of shares floating47,805m
No. of common shareholdersnot stated
No. of employees113617
Trading volume (10 day avg.)145m
Turnover£23,535m
Profit before tax£-1,427m
Earnings per share-2.04p
Cashflow per share2.00p
Cash per share114.02p

*Correct as at 20 Jan 2014

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.

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