The Expert View: Aviva, Mothercare, Sainsbury’s
A round-up of the best analyst commentary on shares, also including Persimmon and Majestic Wine.
‘Theoretical merit’ in Aviva bid for RSA
Analysts at Berenberg have highlighted the ‘theoretical merit’ for insurer Aviva (AV.L) if it chose to bid for RSA (RSA.L).
RSA is facing a £200 million capital shortfall and analyst Matthew Pearson said it could be a target for Aviva, which would have ‘considerable industrial logic’. Aviva is not without its own problems, namely around leverage, which a takeover would not reduce, but make more sustainable.
‘With two-thirds of RSA’s premiums coming from complimentary regions, combining the two operations would establish market leadership positions,’ he said, adding that it would also help ‘cement the delivery of the ‘cash flow plus growth’ strategy’.
Pearson said the analysis of the merits of an acquisition did not mean it would happen but that without ‘radical action’ Aviva would still struggle with leverage issues that would limit dividend prospects.
Pearson retained a ‘sell’ recommendation on Aviva shares and a target price of 415p.
Aviva shares were up 1.32%, or 6p, at 460p on Wednesday.
International problems means Mothercare still a ‘sell’
Weak international trading has led Liberum to maintain its ‘sell’ rating for Mothercare (MTC.L).
The retailer brought forward its Q3 trading update which showed gross margins were down 4% in the 12 weeks to 4 January.
Analyst Sanjay Vidyarthi said he was concerned about weakness in the international business which has been underpinning the company in the UK. He placed a target price of 300p on the shares and maintained his ‘sell’ recommendation.
The weakness in international markets has been caused by currency exchange rates and ‘pressure in Russia and the Middle East due to unseasonable weather’ and ‘weaker economic conditions’.
‘Management now expects full year 2014 profits to be below the current range of expectations,’ said Vidyarthi, adding that without further guidance on margins it would be ‘difficult to know exactly where consensus will fall’.
Mothercare shares slumped 30%, or 128p, to end Wednesday at 291p.
Housebuilder Persimmon upgraded to ‘hold’ on back of Help to Buy
Numis has increased its rating for housebuilder Persimmon (PSN.L) from ‘reduce’ to ‘hold’ as it continues to benefit from the government’s Help to Buy scheme.
Analyst Chris Millington increased his target price on the shares to £13.00 after a full year trading update that ‘has surprised on the upside’ as Persimmon increases the number of properties built to satisfy demand caused by Help to Buy.
‘We forecast 7% growth for the full year but the group has increased volumes 16%,’ said Millington. ‘Overall the upgrades to estimates has brought Persimmon’s valuation back in line with the sector and therefore we are moving to a ‘hold’ recommendation and await to hear more details on the cash return.’
Numis increased its expectations for profits, now predicting 2014 profits before tax to be £417 million, up from £354 million and in 2015, for figures to his £488 million, up from £396.5 million.
Shares closed up 1.26%, or 16.25p, on Wednesday at £13.10.
Sainsbury’s is Panmure’s favourite grocery stock
Strong Christmas trading means Sainsbury’s (SBRY.L) has secured the title of best placed UK food retailer, according to Panmure Gordon.
The supermarket has by-passed a difficult October and November to produce a positive Q3 trading update, where sales have been above expectations.
Graham Jones, analyst at Panmure, placed a target price of 369p and continued his hold recommendation for the stock. He described Sainsbury’s as ‘well set up and balanced’ and said although online sales had slowed in the second half of the year, the supermarket’s Taste the Difference range has continued to grow.
‘We don’t think the valuation looks particularly demanding, and we continue to view Sainsbury’s as the best placed of the UK food retailers, but our caution on the short-term sector outlook holds us back from having a more positive recommendation on the stock,’ said Jones.
Sainsbury’s shares moved little on Wednesday, down 0.37%, or 1.35p, at 367p.
Investec toasts double-digit growth for Majestic
Investec is expecting double-digit growth from Majestic Wine (MJW.L) as 2014 becomes a year of investment for the wine warehouse.
Analyst Kate Calvert placed a 546p target price on the shares and reiterated her ‘buy’ recommendation despite Investec adjusting down its 2014 profit expectations to come in line with consensus.
‘With 2014 being a year of investment, we believe Majestic is well-positioned to deliver at least double-digit growth going forward as it leverages recent infrastructure and new space investment in 2015,’ she said.
‘In our view the current valuation is undemanding given the expected profit trajectory, cash generation and dividend yield.’
Majestic shares closed down 3.19%, or 17.5p, at 530p on Wednesday.