The Expert View: Centrica, Paragon and DMGT
Our daily roundup of analysts' share recommendations and commentary, also featuring Wood Group and Hutchison China Meditech.
Centrica: trio of headwinds
Deutsche Bank analyst Martin Brough has maintained a ‘buy’ for energy company Centrica but reduced his target price on the stock over fears about a competition review in the UK.
Brough reduced the target price from 315p to 300p (current price 308p).
‘We expect full year results on 20 February to be in line with interim management statement guidance and Reuters consensus estimates,’ he said. ‘However, the bigger concern is likely to be the outlook, with all three main divisions facing headwinds. The UK competition assessment in March seems increasingly likely to call for a full Competition Commission review.
‘Meanwhile all North Sea gas producers are facing rising cash costs, and retailers in Texas are seeing a margin squeeze.’
Shares in Centrica have fallen 20% since September due to perceived political risk and Brough ‘continues to assume a margin squeeze from 6% to 3% in the medium term on retail’.
Paragon’s bank launch is a ‘significant step’
Paragon (PAG.L) has announced it is launching a bank in what Peel Hunt described as a ‘significant step’ for the buy-to-let lender.
Stuart Duncan retained a ‘buy’ recommendation and a target price of 425p on the shares (current price 378p).
‘Paragon will provide £12.7 million capital to launch the bank, with further capital provided in future to support the group’s business,’ said Duncan. ‘This is a relatively modest investment for Paragon, buy which has the potential to help improve returns for the group overall.’
The bank will offer savings and loans and headed by Richard Doe, who was previously chief executive of ING Direct.
‘We believe this is a significant step for Paragon, enabling the building of a business in a market which offers the potential for attractive margins,’ said Duncan.
Wood Group escapes third profit warning
Energy services company Wood Group (WG.L) managed to avoid a third profit warning as full-year results came in in-line and the outlook for 2014 remained unchanged.
Investec analyst Neill Morton retained a ‘buy’ recommendation and a target price of 720p (current price 701p), although the target price is under review.
‘After warning on profits at its past two announcements, it is not third-time unlucky for Wood Group,’ he said.
'Full-year results are in line but, importantly, guidance for 2014 remains broadly unchanged, with modest earnings per share growth foreseen in 2014; we expect to make only minor changes to forecasts.’
Wood Group has said it plans to increase cash returns and Morton said the current valuation more than discounts the risk of a further slowdown in contract awards.
DMGT: Liberum reiterates ‘buy’ on attractive valuation
Liberum has reiterated its ‘buy’ recommendation for publisher Daily Mail & General Trust (DMGT.L) following a strong B2B performance and a pick-up in advertising.
Analyst Ian Whittaker also increased the target price from £10.75 to £11.55 (current price £10.57) after B2B business grew 10% in Q1 2014 and advertising revenue increased 5% over the same period, showing that digital growth is offsetting print declines.
The publisher also has its 52.5% stake in property website Zoopla to consider and it is ‘exploring options’ that could ‘possibly lead to cash returns’.
The company’s stakes in Zoopla and regional publisher Local World makes it valuation look attractive, said Whittaker.
Hutchison China Meditech can rally further
Hutchison China Meditech, the rallying AIM-listed healthcare group, can rise further, according to analysts at Panmure Gordon who have raised their target price on the stock.
‘The company provides a well-diversified consumer healthcare opportunity in a market that should see strong growth in the next 3-5 years,’ said Panmure’s Savvas Neophytou as he upped his target price to 750p from 725p.
The analyst’s call came after the company announced 2013 operating profit growth of 65%, to $9.6 million (which helped the shares higher to 700p on Tuesday morning).
‘Our overall positive stance is partly underpinned by strong progress in the drug development business,’ added Neophytou.
‘We are also increasingly more positive on further good news (and the possibility of additional significant milestone payments) from the company's collaboration with AstraZeneca on cancer candidate Volitinib.’