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The Expert View: Diageo, Centrica and British American Tobacco

A roundup of some of the best analyst commentary on shares, also including Taylor Wimpey and Capita.

Our daily round-up of analyst recommendations and commentary, featuring Diageo, Centrica, British American Tobacco, Taylor Wimpey and Capita.

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Key stats
Market capitalisation£51,494m
No. of shares out2,510m
No. of shares floating2,495m
No. of common shareholdersnot stated
No. of employees27483
Trading volume (10 day avg.)4m
Profit before tax£1,953m
Earnings per share77.84p
Cashflow per share97.05p
Cash per share42.94p

*Correct as at 31 Jul 2013

Canaccord downgrades Diageo despite strong growth

Canaccord has downgraded Diageo (DGE.L) from 'buy' to 'hold' despite yesterday's strong trading figures, saying it's all in the price already.

Net sales over the year rose 6% to £11.4 billion, at the top end of analysts' expectations, boosted by an acquisitions-fuelled 11% rise in sales in emerging markets.

'F13 results are solid on virtually all metrics,' Canaccord analyst Eddy Hargreaves said.

'However, the positives are already reflected in consensus (operating profit expected to grow +8% organically in F14, continuing the F13 trend) and in the share price; therefore with 2% downside to our unchanged target price we lower our rating to HOLD from Buy.'

Shares in the group closed at £20.54 on Wednesday, up 64.5p or 3.2%.

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Key stats
Market capitalisation£20,263m
No. of shares out5,173m
No. of shares floating5,106m
No. of common shareholdersnot stated
No. of employees38642
Trading volume (10 day avg.)9m
Profit before tax£1,273m
Earnings per share24.41p
Cashflow per share48.87p
Cash per share18.04p

*Correct as at 31 Jul 2013

Centrica basks in shareholders' appreciation

Liberum Capital has reiterated its 'buy' recommendation Centrica (CNA.L) after the British Gas owner reported a 2% rise in first-half earnings.

Adjusted operating profits of £1.58 billion over the past six months beat consensus estimates of £1.5 billion, helped along by strong residential sales from British Gas.

The positive update followed Tuesday's news that Centrica is to buy US oil group Hess for more than £657 million.

Liberum's analysts said the conference call after the results suggested the management are confident of meeting 2013 market expectations and delivering real dividend growth.

Shares in the group closed at 391p on Wednesday, up 5.2p or 1.4%.

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Key stats
Market capitalisation£67,080m
No. of shares out1,917m
No. of shares floating1,809m
No. of common shareholdersnot stated
No. of employees87485
Trading volume (10 day avg.)2m
Profit before tax£3,841m
Earnings per share197.08p
Cashflow per share235.87p
Cash per share109.15p

*Correct as at 31 Jul 2013

'Buy' British American Tobacco, Investec says

Investec has reiterated its 'buy' recommendation on British American Tobacco (BATS.L), saying things are looking up for the second half of the year.

Yesterday's first-half figures showed earnings per share 1% ahead of consensus expectations at 109.1p, but organic sales growth missed the Investec forecast by 2%.

'The underlying metrics look to be below expectations and testify to continuing challenges for both BAT and the industry,' analyst Martin Deboo said.

'However there are positive signs for H2: the rate of decline in Europe reduced in Q2 and BAT will lap the anniversary of tax changes in Brazil.' Consumer demand fluctuations and excise taxes and regulation are the major risks for the shares, Deboo added.

The analyst has a target price of £37.50 for the shares.

Shares in the group closed at £35.06 on Wednesday, up 43.5p or 1.3%.

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Key stats
Market capitalisation£3,483m
No. of shares out3,232m
No. of shares floating3,189m
No. of common shareholdersnot stated
No. of employees3527
Trading volume (10 day avg.)8m
Profit before tax£231m
Earnings per share7.09p
Cashflow per share7.15p
Cash per share5.90p

*Correct as at 31 Jul 2013

Jefferies lifts target price on Taylor Wimpey

Jefferies has increased its target price for homebuilder Taylor Wimpey (TW.L) on the back of a strong first-half update.

The group operating margin rose to 13.1%, up from 11% in the year-ago period, and the operating profit was up 33.5% at £132.4 million.

'We are upgrading our FY14 and FY15 estimates by 2% following today's H1 results, reflecting higher operating margin assumptions in what we view as a recovering UK housing market,' analyst Anthony Codling said.

'Although the housing market has changed gear Taylor Wimpey's strategy has not, it remains focused on optimising shareholder value ahead of growing volumes. We increase our target price to 122p (+11p) and re-iterate our BUY rating on the shares.'

Shares in the group closed at 106.5p on Wednesday, up 0.3p or 0.3%.

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Key stats
Market capitalisation£6,847m
No. of shares out658m
No. of shares floating650m
No. of common shareholdersnot stated
No. of employees47590
Trading volume (10 day avg.)1m
Profit before tax£236m
Earnings per share36.68p
Cashflow per share62.82p
Cash per share113.86p

*Correct as at 31 Jul 2013

Capita has a mountain to climb, Westhouse warns

Outsourcing giant Capita (CPI.L) is running out of wiggle room, according to Westhouse, meaning any slippage in sales over the rest of the year is likely to unsettle investors.

Last week's interims showed earnings exactly in line with Westhouse's £227 million target, but organic revenue growth of just 3% was well below what they'd pencilled in.

'Capita needs to deliver 13% organic to hit its 8%+ organic guidance for the full year,' the analysts noted, reiterating their 'sell' recommendation. 'This is all down to start dates of recent wins, which we think are mainly pinned down, but the point is there is hardly any room for slippage now, and any slippage that resulted in a scaling back of organic growth would be poorly received by the market.'

The valuation of the shares is currently at a five-year high of 13.2x enterprise value to earnings, Westhouse said. 'We believe that the current level of valuation requires a significant and sustained return to historical levels of organic growth that we believe will prove very challenging to deliver.'

Shares in the group closed at £10.43 on Wednesday, up 5p or 0.5%.

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