The Expert View: Aggreko, Serco and Interserve
Our daily roundup of the best analyst commentary on shares, also including SDL and Stanley Gibbons.
Aggreko’s ‘cracking Q2’ underpins momentum
Momentum at power provider Aggreko (AGK) is ‘turning positive’ after impressive interim results.
Jefferies analyst Will Kirkness reiterated a ‘buy’ recommendation and increased his target price from £18.00 to £20.00. Shares fell 1% to £17.22 yesterday.
‘With interim earnings per share 5% ahead of consensus… it feels as though momentum is really turning positive,’ he said. ‘Power projects had a cracking Q2 and improving utilisation, a buoyant pipeline and increased capex gives us confidence. A strong local backdrop supports the group.’The interim statement reported underlying revenue growth was up 12% and profit before tax was up 5% ahead of consensus at £132.5 million, meaning earnings per share were up to 36.5p.
Stanley Gibbons property sale gets stamp of approval
Stamp collectable seller Stanley Gibbons (SGI) has sold of the premises of coin seller Baldwin after the takeover of its parent company Noble at the end of last year.
Peel Hunt analyst Charles Hall retained a ‘buy’ recommendation and target price of 400p on the stock after the sale of Adelphi Terrace in London, the former home of Baldwin, for a higher-than-expected price of £4.5 million. Shares were trading flat at 299p yesterday.
‘Completion is due in November and this fits nearly with the planned move of the Baldwin’s team into Stanley Gibbons premises on the Strand this autumn,’ he said. ‘This will take net cash to around £15 million, giving the company significant firepower to acquire additional stock.
‘The shares are trading on 14.8X to March 2015 price/earnings ratio, and this looks good value given the scale of opportunity and the level of asset backing.’
Interserve looks cheap following ‘encouraging’ update
Construction company Interserve (IRV) has reported ‘encouraging’ first half results but there are risks to the upside, according to Liberum analyst Joe Brent.
Brent retained a ‘buy’ recommendation and target price of 750p on the shares after profits and net debt came in better than expected and the company moved to derisk its pension. Interserve rose 3.9% to 637p yesterday on the news.
He noted that while there was ‘early cycle recovery in UK construction’ there were ‘weak profits at international construction, but the order book is up, which may signify the turn’.
‘The shares are trading on a 2015 price/earnings ratio of 9.5X, which is still not expensive,’ he said. ‘This seems cheap given the encouraging trading throughout the business, and the contract momentum.’
Serco downgraded as recovery priced in
A recovery is already being priced in to shares for outsourcing company Serco (SRP), leading Numis analysts to downgrade the stock.
Analyst Julian Cater downgraded his recommendation from ‘hold’ to ‘reduce’ and lowered the target price from 360p to 295p after predicting a ‘bath shaped recovery’. Shares fell 5.3% to 334.7p yesterday.
‘We believe that the market is already pricing in a significant operational turnaround at Serco post the appointment of Rupert Soames as chief executive. In our opinion, significant market risks still exist to short-medium term forecasts and it will take a considerable length of time to stabilise a business that has seen huge staff turnover, and very significant contract attrition, before any sort of recovery can be delivered,’ he said.
SDL results point to recovery for software provider
Enterprise software marker SDL (SDL) has given Investec analysts hope of a recovery in language services and technology.
Analyst Julian Yates retained a ‘buy’ recommendation and a target price of 420p following first half results for the group. Shares fell 1.1% to 329p yesterday.
‘The H1 2014 results gave reason to further stress SDL’s valuation anomaly,’ he said. ‘The recovery of language services is sustainable, in our view, and early indicators in technology are encouraging. With some margin upside potential in language services versus our forecasts, as top line growth comes through, this supports a full year 2015 valuation view.
He added that measures to bring all products into the same suite and align sales ‘marks a major transition that will only now start to impact results’.