The Expert View: BP, Balfour Beatty and Spirax-Sarco
Our daily roundup of the best analyst commentary on shares, also including Huntsworth and Synthomer.
RBC sanguine over Russia threat to BP
As investors fret that tit-for-tat sanctions between Russia and the West could escalate into measures threatening the trade of oil and gas, RBC Capital Markets is remaining sanguine over the potential impact on BP (BP).
Despite its stake in Russian oil and gas group Rosneft, RBC analyst Peter Hutton believes that BP’s financial exposure to further potential sanctions is muted.
‘Defining the impact of sanctions remains far from clear – so instead we take a cautious downside and a worst case scenario to set the potential limits, and argue that even the worst case concerns are over-played. Given the low probability of this scenario, the risk-adjusted impact would be more muted still,’ he said.
BP has already received a $693 million (£413 million) dividend from Rosneft, and the next is not due until July 2015. Even if BP were to forego this dividend for the next three years, the impact on RBC’s 530p price target would be just 4p, said Hutton.
Were BP forced to relinquish its Rosneft stake with no return, the impact on RBC’s BP valuation would be just 19p, he added.
‘BP now offers 19% potential to our 530p price target including yield, the highest in our coverage of international integrated oil companies. Even taking 100% of the risked downside scenario to 511p, this still leaves BP offering 15% upside, still at the top end of the range available in the sector,’ he said.
‘We regard this potential as more than compensating the risk, and reiterate BP as “outperform”.’
Balfour Beatty a ‘buy’ as Carillion rebuffed again
Analysts at Liberum are maintaining a ‘buy’ recommendation on Balfour Beatty (BALF) as the infrastructure company rejected a second merger proposal from rival Carillion.
Liberum believes Balfour Beatty offers ‘contrarian deep value’ after a difficult 18 months which has seen it lose its chief executive and issue a series of profit warnings.
The analysts think a deal is now less likely, as a hostile bid from Carillion would come as a surprise. Merger talks between the two came unstuck after Carillion insisted Balfour Beatty cancel the planned sale of its US unit Parsons Brinckerhoff.
‘The organic road to recovery will be long and not always smooth, but it nevertheless offers huge margin recovery potential,’ said Liberum. ‘There is a long to-do list and will be no quick-fix in the go-it-alone strategy.’
Liberum has a 280p target price on the shares, which rose 2.9% to 244p yesterday on news the second Carillion bid had been rejected.
Spirax-Sarco steams along
Investec has downgraded Spirax-Sarco Engineering (SPX) from ‘buy’ to ‘add’ after recent outperformance of the stock.
The company, which makes steam-control valves and pumps, blamed the strong pound for a 4% drop in first-half revenue as it issued results last week. But it said a larger order backlog than last year would help it overcome difficult conditions in the second half of the year.
‘Foreign exchange made a mess of the reported interim results – as expected – but the underlying trends were reassuring,’ said analyst Michael Blogg.
‘Organic growth in sales and operating profit left H1 earnings in line with our estimates and delays in China may have generated a greater than normal H2 bias.’
Blogg has a target price of £29.20 on the shares, which are trading at £28.55, up 12% over the last month.
Hunstworth under review as investors speculate
Peel Hunt has placed its rating of public relations company Huntsworth (HNTS) under review after news that chief executive Peter Chadlington is stepping down.
Shares in the company surged 24.7% to 51.1p yesterday despite news of a 7% drop in revenues and a 27% fall in pre-tax profits, as investors speculated over the future of the company.
‘We expect the market will start to speculate on the break-up of Huntsworth, post Lord Chadlington’s departure,’ said Peel Hunt analyst Malcolm Morgan. ‘Could Bluefocus [China’s biggest listed public relations company] increase its stake? Could Matthew Freud – a successful [marketing communications] investor – have an influence?’
‘Once the speculation has faded the company will still face important structural issues.’
Get set for more payouts from Synthomer
Investors in Synthomer (SYNTS) could be in line for further capital returns from the chemicals company, even as it announced an increase in its interim dividend, according to Jefferies analyst Joe Spooner.
‘Mid cap’ stock Synthomer was the biggest riser on the FTSE 250 yesterday, jumping 8% to 224.5p as investors digested the news of a 3p interim dividend, up from 2.4p the year before.
‘On first view, we think that still leaves good scope for one-off capital returns to come (subject to future bolt-on acquisition and capex activity),’ said Spooner.
The company reported a fall in pre-tax profit to £45 million for the six months to the end of June as increased competition in Asia hurt performance. Profits for the year are expected to be in line with levels last year.
Spooner has a ‘buy’ rating on the stock, and a target price of 338p.