The Expert View: Domino Printing, Chemring and Ocado
A roundup of the best analyst commentary on shares, also including NWF Group and Fusionex.
Domino falls but it’s still one to ‘hold’
Markets reacted badly to Domino Printing Sciences (DOPR) results yesterday but Investec maintains, despite the pressures it is expected to face, figures for the first half of this year represent a ‘very good set of results’.
Domino management made some cautious comment about competitive pressures in 2015 and warned results next year would be broadly similar to 2014 due to the need for further investment in research and development.
Investec analyst Michael Blogg put his ‘hold’ recommendation and 830p target price ‘under review’. Shares fell by nearly 17% to 615p in yesterday's trading.
‘Revenue growth of 7% in H1 2014 was nicely ahead of our estimate, helped by a good reception for new products, and the margin performance was impressive, against a currency headwind,’ he said. ‘Adjusted profit before tax growth of 10% may not be repeatable in H2 but we expect to raise our estimates for full year 2014, within a narrow range.
‘In spite of this, de-rating of the peer group is likely to reduce our target price,’ he said. ‘Our estimates, valuation and recommendation are under review, but this is a very good set of results.’
NWF’s bumper harvest prompts upgrade
Specialist agriculture and distribution business NWF Group (NWF) has been upgraded after better-than-expected full year results that ‘bode well’ for next year.
Peel Hunt analyst Charles Hall upgraded that company from ‘hold’ to ‘buy’ and increased the target price from 148p to 168p. Shares were trading at 161p at yesterday's close.
‘NWF has delivered full year numbers slightly ahead of our expectations, despite the impact of the exceptionally mild winter,’ he said. ‘This bodes well for next year and we are increasing our forecasts by 3%. We are increasing our recommendation to “buy” as we are more confident about the potential for outperformance and see the shares as good value on a price-earnings ratio of 12.2 to March 2015.’
Misfiring Chemring still a ‘sell’
A new chief executive and currency headwinds are weighing heavy for Chemring (CHG), manufacturer of military flares and missile decoys.
Liberum analyst Ben Bourne retained a ‘sell’ recommendation and put the 210p target price under review. Shares in the company fell 8.4% to 190p in yesterday's trading as it unveiled its results for the first half of the financial year.
Although the results were in line with expectations, there is a large upheaval in the company as chief executive Mark Papworth is being replaced by Michael Flowers, who has a military background and has worked at Chemring since 2006, with immediate effect.
‘The outlook is broadly unchanged but having spoken with management we cut full year 2014 earnings per share by around 10% to 13p for ongoing issues at Kilgore [in Texas where flares are produced] and foreign exchange headwinds,’ said Bourne. ‘End markets remain challenging and customer behaviour difficult to predict. Net debt has reduced to £229 million pre-munitions disposal proceeds. The shares are down 25% since we downgraded to “sell” in March.’
Ocado looks expensive despite strong potential
Jefferies analyst James Grzinic has upgraded his target price for online supermarket Ocado (OCDO) but said the shares were looking ‘fully priced’.
Grzinic retained a ‘hold’ recommendation but increased the target price from 275p to 330p. Shares were trading at 366.8p at yesterday's close.
‘Our upgraded 330p Ocado target reflects the strong ramp-up in margins and international potential. It also recognises continued leadership in UK customer metrics and progress on price perception,’ he said.
‘However, we note the potential risks from changes in the Waitrose relationship and challenges from alternative food online models. Given this, at current levels the stock looks fully priced.’
He added he remained ‘realistically cautious’ on the stock and that ‘monitoring progress at competitors may well prove more meaningful to the group’s long-term potential than Ocado’s own execution’.
‘Buy’ Fusionex after link up with EMC
IT company Fusionex (FXIF) has linked up with EMC Computer Systems to market, promote and sell a combined ‘Big Data’ and analytics portfolio.
Panmure Gordon analyst George O’Connor retained a ‘buy’ rating and target price of 657p on the stock. Shares stood at 385p at the close of yesterday's trading.
‘This alliance aims to bring end-to-end Big Data and analytics capabilities to several key industries such as finance, retail, travel and hospitality, and government,’ said O’Connor. ‘The strategic partnership is aimed to provide a symbiotic approach, where Fusionex leverages EMC’s technology platform and market reach. For its part EMC will be able to tap into Fusionex’s expertise and know-how in business intelligence.’
O’Connor added the weak share price was an opportunity to reaffirm his ‘buy’ rating.