The Expert View: EasyJet, Phoenix and Shanks
Our daily roundup of the best analyst commentary on shares, also including African Barrick Gold and Asos.
EasyJet investors set for £500m windfall
Numis has upgraded EasyJet (EZJ.L) from ‘add’ to ‘buy’ as it highlighted that the budget airline could return around £500 million, or 130p per share, through special dividends over the next three years.
It increased its target price from £19 to £21, arguing EasyJet could benefit from structural changes to short-haul aviation in Europe. Yesterday EasyJet shares gained 7p to £17.18. They have risen nearly 12% this year.
One of these changes is the broadening of the European Union’s ‘Common Aviation Area’ through agreements struck with neighbouring countries. ‘In our opinion, this liberalisation will continue to offer opportunity for European low-cost carriers, including EasyJet, even though EasyJet’s core markets are already fully liberalised,’ said Numis analyst Wyn Ellis.
He added the company was also well poised to take further market share from ‘legacy’ [non-low-cost] airlines in its current markets.
‘Non-low-cost carriers account for 53% of the traffic at EasyJet’s top 20 airports, of which only 12% is estimated to be traffic connecting to long-haul flights; 41% is on point-to-point routes. In our opinion, this represents a major growth opportunity for EasyJet,’ he said.
African Barrick Gold reaps benefit of cost-cutting
A recent visit to the operations of African Barrick Gold (ABG.L) has prompted Peel Hunt to upgrade the Tanzanian gold producer from ‘hold’ to ‘buy’.
Analyst Michael Stoner said the decline in the company’s share price in recent weeks on the back of a softening gold price had created an ‘attractive entry point’ for the stock, and has increased his net asset value from 272p to 289p. Yesterday the shares rose 12p, or nearly 5%, to 259.5p. They have advanced 40% so far this year.
Stoner said Peel Hunt’s site visit had shown that cost-cutting measures were not hurting the longevity of operations. ‘If anything, the improvements are making the operations more sustainable with rescheduling of the plant and equipment maintenance schedules likely to increase availability and the improvement in development productivity to increase production flexibility.’
‘The underlying quality of the company’s assets, combined with a strong management team, gives us confidence in the probability of the ongoing improvements to the business being delivered successfully.’
Phoenix emerges from the FCA’s flames
Canaccord Genuity has reduced its target price from 865p to 800p for closed book insurer Phoenix Group Holdings (PHNX.L), whose shares dived last week on reports the City regulator would examine insurers’ historic pensions and investment business.
Analyst Ming Zhu said the lowering of the target was due to guidance of flat dividends issued last week, ‘based on an unchanged target dividend yield of 6.75%, which equates to a 28% discount to our lower embedded value estimate’.
She added that while the Financial Conduct Authority was highlighting a lack of transparency in insurers’ back books, ‘we view Phoenix’s disclosure of the back book structure as relatively good compared to others in the UK life market’.
Zhu maintained her ‘buy’ rating for the shares which yesterday added 7p, or 1%, to 659p. ‘Phoenix’s 0.1% admin margin on its with-profits book in 2013 and 0.55% on its unit-linked book (likely from 1% of charges) are unlikely to be deemed “rip-offs”,’ she said.
‘As Phoenix only manages a closed book, ie, no new customers, we do not see it as at risk of breaching the requirements to treat its customers fairly. The management is also confident in the level of service it has provided to its customers.’
Shanks sees profit growth go down the pan
An anticipated flat year of profit in 2015 for Shanks (SKS.L) has led to Liberum downgrading the waste management group from ‘buy’ to ‘hold’ and reducing its target price from 125p to 115p.
Liberum’s support services team has downgraded its earnings per share forecast for the company by 8%. ‘The long-term opportunity is still intact, but a year of flat growth balances against a premium weighting,’ it said.
It said that while Shanks was outperforming its regional peers, downward pressure on volumes and price in the solid waste market would continue to impeded progress made in the Canadian organics, municipal and hazardous waste sectors.
The shares declined 5.3p, or 4.5%, to 112p on Monday. They are up 3% year to date.
Asos shocker is golden opportunity
The recent share price drop in Asos (ASC.L) presents an ‘excellent opportunity’ for investors according to Barclays, which has raised its target price from £60 to £80 and reiterated its overweight rating.
‘We regard Asos as the best placed company in our coverage universe to benefit from a hyperconnected world and the fast increase in online apparel penetration worldwide,’ said Barclays analysts Christodoulos Chaviaras and Claire Huff.
‘Despite its rapid expansion, Asos is still at an early stage of its growth and we think its current valuation fails to reflect both the growth of the global online apparel market and Asos's opportunity to further increase its pace of market share gains.’
Yesterday the shares gained 87p, or 1.7%, to £51.11. They have fallen 16.5% so far this year.