The Expert View: GKN, St James's Place and BP
Our daily roundup of the best analyst commentary on shares, also including Tullett Prebon and Escher.
GKN upgraded after focus moves back to value
Engineering group GKN (GKN) has been upgraded as currency headwinds appear to stabilise, meaning investors can refocus on the underlying value and prospects of the business, according to Numis.
Analyst David Larkham upgraded his recommendation from ‘add’ to ‘buy’ but kept his target price of 435p following ‘solid’ first half results for the company, which manufactures parts for cars and aeroplanes. Shares jumped 6.7% to 366p yesterday on the results.
‘The shares have underperformed the UK engineering sector in 2014 reflecting downgrades from currencies and land systems division,’ he said. ‘No further changes to forecasts and with currencies now appearing to have stabilised attention can move back to underlying value and prospects.’
He added that with 37% of earnings coming from its aerospace division and the car parts division making good progress, the shares, which are trading at a discount to the sector, looked ‘attractive’.
‘Hence we have upgraded to “buy” albeit further data points may be required before we see much upward traction,’ he said.
St James’s Place continues to break records
Peel Hunt has kept its ‘hold’ recommendation for St James’s Place (SJP) as record-breaking results for the financial sales force were nevertheless in line with investor expectations.
St James’s Place reported a 19% rise in funds under management to £47.6 billion in the first half of the year, a 20% rise in new business, while operating profits were up 12%. Dividend growth is likely to hit 40% over the year.
However, much of that rise is in line with investor expectations, prompting some profit taking in yesterday’s trading, with the shares sliding 2.4% to 771p.
‘SJP’s results were largely as expected, the business delivering strong sales and assets under management growth which is translating into another year of dividend growth, now expected to be 40%,’ said Duncan.
‘We expect our forecasts to move modestly higher, but make no change to our recommendations for now.’
Tullett Prebon struggles in ‘revenue storm’
Wholesale financial broker Tullett Prebon (TLPR) is continuing to struggle amidst a ‘revenue storm’ just weeks after chief executive Terry Smith stepped down.
Liberum analyst Justin Bates retained a ‘sell’ recommendation and target price of 240p after profits for the first half of the financial year fell 31% to £43.2 million, earnings per share dropped 28% to 16p and the dividend per share was held flat at 5.6p.
‘Tullett continues to be battered by a revenue storm that shows no sign of abating,’ he said. ‘The stock has hit our target price but in light of these results and the cautious outlook we shall review forecasts and valuations.’
Bates said that while ‘on the face of it’ Tullett looked ‘attractively priced’ he was concerned about the group’s ‘long-term competitive position’.
Shares were trading at 240p yesterday.
BP results show an ‘ongoing recovery of profitability’
Good results from petrol behemoth BP (BP) highlight an ongoing recovery in profits, according to Jefferies analyst Jason Gammel.
Gammel retained his ‘buy’ rating and target price of 570p following second quarter results showing net income of $3.6 billion (£2.1 billion) – 10% ahead of consensus. However, shares dipped 2.5% to 484.3p yesterday as the oil group warned of the potential impact of further sanctions against Russia due to its stake in Rosneft.
‘While earnings from Rosneft surprised on the upside, BP’s core businesses generally performed well over the second quarter and cash flow generation of $7.9 billion is encouraging,’ he said.
‘Our fundamental view on this stock is unchanged with these results highlighting the ongoing recovery of profitability in BP’s underlying upstream [exploration] operations.’
Escher reaping rewards of ‘bumper’ deal with US Postal Service
Software solutions provider Escher (ESCH) is benefiting from the deal to provide software to the US Postal Service in the biggest deal of its kind.
Panmure Gordon analyst George O’Connor reiterated his ‘buy’ recommendation and target price of 507p following first half results. Shares fell 3.5% to 292p yesterday.
‘Escher is trading in line with full-year estimates. As disclosed [on 9 June] the US Postal Service bumper license is now apportioned between the first half of the year and the second and pleasingly this – the largest contract ever signed in the global post office industry – continues to move ahead,’ he said.
‘We note a tease in the statement that Escher has invested in its postal point of service offer so that it “can be prepared for emerging opportunities in the global logistics space”. While no details were divulged we are intrigued with the comment but will have to await interims for more details.’