The Expert View: Cape, Next and Experian
A roundup of some of the best analyst commentary on shares, including SThree and Babcock International.
Investec reiterates 'hold' on Next
Bethany Hocking, analyst at Investec, has welcomed reassuring Christmas trading figures at high- street clothes store Next (NXT.L), but she retains her 'hold' recommendation, saying the shares are fully valued.
Retail sales rose 0.8% year-on-year in the critical 1 November to 24 December period, while online sales from its 'Directory' operation stormed ahead 11.2%. Hocking said these figures - particularly the strong online performance - should reassure investors, as should a 2% rise in 2013's pre-tax profit forecast.
Although Hocking saw much to admire in the well-loved shares, she said the strengths are reflected in the price. 'We remain long-term fans of Next’s strategy and management, but continue to feel that these attractions are reflected in the current rating of the shares.'
The company's preliminary results will be published on 21 March.
Shares in the group closed at £38.73 on Thursday, up 101p or 2.7%.
Seymour Pierce upgrades Experian on signs of US mortgage market recovery
Caroline de La Soujeole, analyst at Seymour Pierce, has upgraded credit rating business Experian (EXPN.L) from 'reduce' to 'add' amid signs of a recovery in the US mortgage market.
The front page of yesterday's Financial Times stated that Bank of America is ramping up mortgage and corporate lending after two years of focusing on capital levels and cost-cutting.
'We believe this is noteworthy,' de La Soujeole said, 'showing returns to health in the US mortgage market. We believe mortgage related revenues account for about 10% of US credit bureau revenue whilst the latter represented about 20% of group sales in FY12A.'
The shares have underperformed the wider market by 6% in the past month, the analyst said, and as such she believes they're now looking attractive. 'We raise our target price from 1,000p to 1,100p, equivalent to a FY12E calendarised price-to-earnings ratio of 18.3x vs 18.8x for closest peer Equifax,' she concluded.
Shares in the group closed at £10.19 on Thursday, up 7.5p or 0.7%.
Berenberg downgrades SThree after a strong run
Konrad Zomer, analyst at Berenberg Bank, has downgraded technology recruitment business SThree (STHR.L) from 'buy' to 'hold' on the back of a bleak trading outlook and a surge in the shares over the year.
The shares gained 44% over 2012, and Zomer said the mid- to long-term growth opportunities for Sthree remain very good, but he feels 2013 and 2014 consensus forecasts could be 5% and 19% too high.
'Sthree generates more than 60% of group gross profit in the UK (34%), the Benelux countries (19%) and France (8%), and we expect trading conditions in all three markets to remain difficult in 2013,' he said.
'The company’s permanent placement pipeline for these three regions at the end of November was -23%, -23% and -29% respectively. This can change quickly, but we believe short-term trading conditions have deteriorated.'
Zomer expects the company to keep its 2012 dividend flat at 14p for the year, and he doesn't expect a repeat of 2011's bonus dividend of 11p.
Shares in the group closed at 334.75p on Thursday, up 0.5p or 0.2%.
Westhouse cheers LGE Process acquisition at Babcock International
Michael Donnelly, analyst at Westhouse Research, has reiterated his 'add' recommendation on engineering business Babcock International (BAB.L) following its acquisition of LGE Process from Weir on Wednesday.
Babcock paid £23 million for the Edinburgh-based onshore liquid gas engineer, and Donnelly said it should be a 'comfortable bolt-on' to Babcock’s fastest-growing and highest-margin division. The deal also reminds investors that there's still potential in Babcock's traditional business of marine engineering services, as well as support services.
'BAB shares have only modestly outperformed the market (by some 2%) since delivering a solid set of Interims in November, leaving some 15% upside to our (unchanged) target price of 1,142p,' Donnelly said. 'We expect a trading update at the end of this month, but do not expect any major contract awards in the current quarter.'
Shares in the group closed at £10.02 on Thursday, up 6.9p or 0.7%.
JP Morgan backs Cape following 'annus horribilis'
Andrew Dobbing, analyst at JP Morgan, has cut his target price for Cape (CIU.L) to incorporate the industrial services group's latest guidance, which warns of a further deterioration in the Australian market, but he expects things to improve before too long.
Dobbing's earnings per share forecast for this year has fallen 27% to 16.6p to incorporate guidance in Cape’s 12 November update.
'This 16.6p now reflects a further deterioration in the Australian onshore market, but is adjusted to exclude an estimated £140 million non-cash goodwill and asset writedown on the Australian business, as indicated in the interim management statement,' he said. 'While this process is unlikely to be concluded by YE12, we expect the figures to be included in Cape’s FY12 results on 6 March 2013.'
Fundamentally, Dobbing said he believes Cape is taking steps to sort out its problems following what he called its 'annus horribilis' with a new management team and reasons for optimism regarding its troubled Algerian operations. 'We see a clean slate for Cape as we head into 2013, and we reiterate our Overweight recommendation,' he concluded.
Shares in the group closed at 214.91p on Thursday, down 0.1p.