The Expert View: EasyJet, Pearson and Aviva
A roundup of analyst recommendations and comments, also including Associated British Foods and London Stock Exchange.
Investec downgrades EasyJet on poor 2014 outlook
Investec has downgraded EasyJet (EZJ.L) from a ‘buy’ to a ‘hold’ as the shares have become ‘fully valued’.
Investec analyst James Hollins said despite good Q1 results the ‘group has guided to an H1 loss in the range of £70-90 million’ meaning the shares were ‘fully valued’.
‘EasyJet has been our key pick in the airlines sector, delivering reliable and strong earnings growth via aggressive market share gains from network carriers and driving higher yields from a combination of additional business customers and the roll-out of allocated seating,; he said. ‘We continue to project a mix of mid-term c14% earnings growth and cash returns, although the FY14 outlook…lead us to move to hold despite a rise in our price target to £17.50p.’
At the time of writing, shares were down 2.78%, or 48p, at £16.94.
Pearson disappoints with fears over restructuring costs
Education company Pearson (PSON.L) disappointed investors and analysts with a poor trading statement.
Liberum analyst Ian Whittaker maintained his ‘sell’ recommendation and placed a target price of £10.50p on the shares as restructuring costs hit not only FY13 numbers but look like to hit FY14 figures too.
Pearson has had little joy in North America, which Whittaker said ‘is challenging’, and while emerging markets growth was strong, development markets were weak.
‘For FY14…it looks like Pearson is now guiding to net restructuring costs of £50 million vs. the suggested positive benefit,’ said Whittaker. ‘While Pearson is still saying 2015 will be a growth year, the deeper restructure charges, similar to what we have seen in other media sectors in the past that have been structurally challenged –suggest the structural pressures are accelerating.’
At the time of writing the shares had plummeted 7.7%, or 100p, to £11.98.
Another departure confirms Aviva as ‘sell’ for Shore Capital
Shore Capital has reiterated its ‘sell’ recommendation for Aviva (AV.L) after the shock departure of chief financial officer Pat Regan.
Analyst Eamonn Flanagan placed a target price of 477p on the shares after Regan became the latest executive to leave the insurer.
Regan was well liked by investors and employees but is moving to Australia to become CFO at business insurer QBE. It is believed that Regan was disappointed that he was overlooked for the chief executive role last year which went to Mark Wilson.
‘Regan is the latest in a growing list of exits from Aviva, which, to us, is likely to impact operating performance in the coming years,’ said Flanagan. ‘We reiterate our ‘sell’ recommendation on the stock, struggling to justify the material yield discount which the shares trade on compared to Legal & General [which is rated a ‘buy’].’
At the time of writing shares were down marginally 0.26%, or 1.2p, at 476p.
Panmure dismisses Primark IPO rumours
Associated British Foods (ABF.L) has seen its flagship Primark brand attract rumours of an stock market flotation, or IPO, but Panmure doubts the validity of the story.
News that ABF is considering floating Primark saw shares increase 4.2% but Panmure analyst Graham Jones has maintained his ‘hold’ recommendation on the shares.
He thinks that an IPO would go against ABF’s stated intentions for the clothing brand and that Primark’s roll-out across Europe will drive a decade of growth for ABF.
‘We note with puzzlement a report in the Daily Mail (and repeated on Reuters) attributing the 4.2% rise in the share price yesterday to vague rumours that the company s considering floating Primark,’ said Jones. ‘In our view this is completely without substance and contrary to ABF’s stated position on Primark. We would caution against buying ABF shares on an assumption that there will be any change in ABF’s 100% ownership of Primark.’
At the time of writing the shares stood at £27.59 but Jones did not place a target price on them.
Numis puts LSE under review on valuation concerns
Numis analysts have placed shares in the London Stock Exchange (LSE.L) under review from ‘hold’ as they await an expected upgrade to forecasts.
Analyst James Hamilton said the shares in the exchange are not cheap but the momentum is strong and he expected to upgrade revenue forecasts.
‘We continue to believe the LSE offers good long term value and we think the group has done well in diversifying its base of assets, improving its strategic position,’ he said. ‘The shares have run a long way recently and while we continue to believe in the LSE strategy we do not see value at this time.’
He added the regulatory uncertainty remains but operating conditions had started to improve.
At the time of writing shares were up 1.46%, or 27p, at £18.81. Hamilton’s price target is under review.