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The Expert View: Balfour Beatty, Morrisons and Sainsbury's

Our daily round-up of analyst recommendations and commentary, featuring Rightmove and Old Mutual.

Our daily round-up of analyst recommendations and commentary, featuring Balfour Beatty, Morrisons, Sainsbury's, Rightmove and Old Mutual.

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Key stats
Market capitalisation£1,762m
No. of shares out688m
No. of shares floating682m
No. of common shareholdersnot stated
No. of employees50301
Trading volume (10 day avg.)1m
Turnover£9,494m
Profit before tax£182m
Earnings per share26.61p
Cashflow per share46.49p
Cash per share86.61p

*Correct as at 8 Nov 2012

Investec puts Balfour Beatty under review

Andrew Gibb, analyst at Investec, has put his target price for Balfour Beatty (BBY.L) under review and reiterated his 'sell' recommendation after the infrastructure services company issued a profit warning.

'A very poor statement from Balfour Beatty this morning, with profitability now likely to be lower than expected in 2012,' Gibb said. The group's biggest problem is in the UK, Gibb said, as the nationwide projects where it makes most of its money are simply not coming through.

'As a result, 50% of the order book is now regional work, and we believe the risk is now all on the downside for this business,' the analyst added. The order book has now shrunk to £14.4 billion compared with £15 billion at the first-half stage, meaning visibility is diminishing.

'There is a distinct lack of major construction projects in its UK and US markets and given the requirement for political will to alter this position, we have little confidence in a near-term turnaround,' Gibb said. 'Management talks about medium and long-term opportunities, but this is all about now. SELL.'

Shares in the group closed at 253.4p on Thursday, down 52.6p or 17.19%.

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Key stats
Market capitalisation£6,384m
No. of shares out2,409m
No. of shares floating2,051m
No. of common shareholdersnot stated
No. of employees57169
Trading volume (10 day avg.)8m
Turnover£17,663m
Profit before tax£690m
Earnings per share26.03p
Cashflow per share38.86p
Cash per share9.52p

*Correct as at 8 Nov 2012

Shore Capital says 'sell' Morrisons as sales decline

Clive Black, analyst at Shore Capital, has reiterated his 'sell' recommendation on supermarket giant Morrisons (MRW.L) on the back of third-quarter results that came in below his forecast.

Over the quarter like-for-like sales excluding fuel fell 2.1%, slightly worse than the 2% fall Black had predicted. This follows what Black called a 'reasonably disappointing' first-half performance, when sales fell 0.9%.

Black noted that the quarterly figure includes inflation and the uplift from the conversion of 35 stores to its the new Fresh Format fascia, which he said implies a 'materially weak' volume picture. He expects to downgrade his target price of 267p in the coming weeks.

The analyst said the weak results were symptomatic of Morrisons losing touch with its customers. 'We are of the view that Morrison has re-engineered its proposition in a way that, for whatever reason, is 'dis-enfranchsing' its core customers; a totally unintended consequence we should add,' Black said.

'That change implies a move too far away too soon from its value roots to our minds. Correspondingly, we are of the view that Aldi and Asda... in particular have been direct beneficiaries of this development.'

Shares in the group closed at 263.6p on Thursday, down 3.9p or 1.46%.

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Key stats
Market capitalisation£6,678m
No. of shares out1,888m
No. of shares floating1,649m
No. of common shareholdersnot stated
No. of employees48800
Trading volume (10 day avg.)4m
Turnover£22,294m
Profit before tax£598m
Earnings per share31.51p
Cashflow per share56.85p
Cash per share39.24p

*Correct as at 8 Nov 2012

Seymour Pierce previews Sainsbury's first-half results

Kate Calvert, analyst at Seymour Pierce, has reiterated her 'hold' recommendation on Sainsbury's (SBRY.L) ahead of Wednesday's first-half results, saying it's still her pick of the UK supermarkets.

Sainsbury's has already reported sales growth over the period of 4%, and this feeds into Calvert's forecast of 5.1% growth in pre-tax profits for the 2013 financial year as a whole to £748 million.

Sales over the six months benefited from prominent tie-ins with the Olympics and Paralympics, the latter of which had Sainsbury's as principal sponsor.

'The market will be interested in any comments on the current competitive nature of the market and the outlook for inflation which is expected to pick up,' Calvert said. 'Recent market share data suggests that Sainsbury continues to outperform the industry.

'We retain our hold recommendation as the shares do have an attractive yield of 4.8% and it is our preferred food retailer given the consistency of performance. Our target price is currently under review.'

Shares in the group closed at 351.5p on Thursday, down 1p or 0.28%.

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Key stats
Market capitalisation£1,686m
No. of shares out105m
No. of shares floating98m
No. of common shareholdersnot stated
No. of employees293
Trading volume (10 day avg.)0m
Turnover£97m
Profit before tax£46m
Earnings per share42.29p
Cashflow per share43.16p
Cash per share20.17p

*Correct as at 8 Nov 2012

Westhouse upgrades Rightmove on earnings potential

Roddy Davidson, analyst at Westhouse, has upgraded property website Rightmove (RMV.L) from 'sell' to 'neutral' following an encouraging trading update that suggested the group is making progress in translating clicks into cash.

Over the past quarter page impressions are up 20% year-on-year, and the statement said growth in revenue cash generation remains 'healthy'. Cash at the end of October stood at £23.5 million versus £14.6 million at the half year and despite £12.2 million of share buy-backs during the intervening period.

Davidson said a 45% rise in sales of discretionary products year-on-year was particularly encouraging. 'We are pleased with this morning’s update and specifically the continued progress in up-selling agents to discretionary products which will be a key determinant of the group’s success going forward,' he said.

The analyst is leaving his financial forecasts unchanged for now, but he now sees scope for 2013 to come in ahead of expectations, meaning the shares look fairly valued.

Rightmove features in the top holdings of Citywire A-rated Audrey Ryan's Kames Ethical Equity fund.

Shares in the group closed at £15.87 on Thursday, down 3p or 0.19%.

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Key stats
Market capitalisation£8,315m
No. of shares out4,887m
No. of shares floating4,670m
No. of common shareholdersnot stated
No. of employees55549
Trading volume (10 day avg.)11m
Turnover£9,784m
Profit before tax£437m
Earnings per share9.14p
Cashflow per share21.32p
Cash per share74.47p

*Correct as at 8 Nov 2012

Deutsche Bank trims Old Mutual's target price on currency risk

Larissa van Deventer, analyst at Deutsche Bank, has reduced her target price for insurance and savings group Old Mutual (OML.L), warning that adverse currency movements look set to hit profits.

Wednesday's third-quarter results showed revenues down 10% year-on-year at £278 million, beating consensus estimates of £275 million. Julian Roberts, the group's chief executive, said 'UK savings trends remain depressed by low consumer confidence and pressure on household finances'.

Overseas, the picture is brighter, with life insurance sales in South Africa up 16% in the period. However, van Deventer noted that this isn't really reflected in the results as the rand (ZAR) has lost 11% against the pound in the year to date.

'Given the geographical dispersion of Old Mutual’s operations, the group also has substantial foreign currency exposure (specifically USD/GBP and ZAR/GBP), amplified by its high level of ZAR-denominated assets and earnings,' the analyst said.

Based on Deutsche Bank's rand/pound forecasts van Deventer has dropped her target price from 200p to 195p.

Shares in the group closed at 168.6p on Thursday, down 0.2p or 0.12%.

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