The Expert View: Capita, Reckitt Benckiser and Rolls-Royce
A roundup of some of the best analyst commentary on shares, including AVEVA Group and Sthree.
Capita's running out of steam, Canaccord warns
'Capita’s best days for growth are behind it', according to Canaccord analyst Julian Cater, who has downgraded the shares (CPI.L) from 'hold' to 'sell'.
Although a good recent track record in contract wins has seen a 5% rise in organic sales in the year so far, Cater doesn't expect this to last.
'A number of the coalition government’s procurement initiatives (move to open source computing, enthusiasm for mutuals) look likely to limit medium-term growth rates, and the reduction in the growth rates used to test acquired goodwill in the 2011 annual report suggests to us that management also recognises that Capita’s best days for growth are behind it,' he warned.
The company's record in acquisitions is 'mixed', he added, while the general insurance and property divisions have been disappointing for the past few years.
Shares in the group closed at 781p on Monday, down 12.7p or 1.6%.
Reckitt poised for ‘good finish to the year’
Analysts at JPMorgan Cazenove have raised their price target for Reckitt Benckiser (RB.L) shares, from 3,500p to 4,300p, in expectation of ‘a good finish to the year driven by Health’.
The consumer goods firm, which produces brands such as Nurofen and Gaviscon, ‘should deliver a pleasing acceleration in top line in Q412 to 6%, leading to 5% LFL for the year beating its guidance of 3-4%,’ said the analysts, who rate the shares as ‘neutral’.
After a 29% share price rise in 2012, ‘the stock appears fairly valued, in line with peers, though top line beat in Q4 & Q1 could prove supportive,’ they say. Reckitt Benckiser shares moved 1% higher on Monday to £42.38.
‘Little upside’ for Rolls-Royce
Investors in Rolls-Royce (RR.L) shares can expect ‘little further upside’, say analysts at Societe Generale in a review of the aerospace and defence sector.
‘We maintain a Sell on Rolls-Royce where we see little further upside from current levels given a rich valuation and the uncertainty created by the SFO bribery investigation,’ they say.
Cobham is also now a ‘sell’ for the French bank, downgraded from a ‘hold’.
French firm Safran and pan-European aerospace and defence company EADS however are both buys, Societe Generale say.
Rolls Royce shares dropped on Monday, ending the day down 0.2% to 944p.
Merchant Securities downgrades AVEVA Group to 'sell'
Merchant Securities analyst Roger Phillips has downgraded engineering software business AVEVA Group (AVV.L) from 'hold' to 'sell', saying the lack of detail about expectations for the year in the latest trading update is a bad sign.
'At first glance, AVEVA’s Q3 interim management statement (IMS) reads ordinarily and relatively positively overall, but it is noticeable that the IMS does not contain any guidance on the outcome for the full year,' he said.
'This is the first time that this language has not been included in an AVEVA Q3 IMS, or alternatively a comment that the board anticipates meeting expectations for the full year.'
The shares are starting to look overstretched, he added, and he expects them to fall once consensus estimates for the full year are trimmed.
Shares in the group closed at £21.91 on Monday, down 41p or 1.8%.
Seymour Pierce downgrades Sthree to 'sell'
Recruitment business SThree (STHR.L) faces an uncertain future, Seymour Pierce analyst Kevin Lapwood has warned, spurring him to downgrade the shares from 'hold' to 'sell'.
Over 2012 net income improved 5% to £205.3 million, hitting expectations. However, over the last quarter of the year net fee income growth of 2% represented a downward trend, which has Lapwood worried.
'We remain cautious over the outlook: the permanent deal pipeline at the period end was 4% down year on year (permanent accounts for 50% of the business),' he said.
The shares trade on a prospective price-to-earnings ratio of 21.7x Lapwood's 2013 earnings estimate: a premium to the sector average of 17.2x.
Shares in the group closed at 344p on Monday, down 0.8p or 0.2%.