The Expert View: Go-Ahead Group, Fenner and Ted Baker
Our daily roundup of the best analyst commentary on shares, also including London and Amara Mining.
Go-Ahead on track for first-class earnings
Panmure Gordon analyst Gert Zonneveld has upgraded his recommendation for shares in rail and bus operator Go-Ahead Group (GOG) from ‘hold’ to ‘buy’ on strong earnings growth.
Rising bus profits, the recent capture of the Thameslink franchise and the extension of the Southeastern franchise have all contributed to the upgrade, and a hike in the target price from £20 to £25. Shares were trading at £22 on Friday's close.
‘The recent win of the Thameslink franchise is hugely positive for the group, and significantly lifts the earnings and cash flow profile of the company for the next seven years or so,’ said Zonneveld.
‘Rail earnings should be further boosted by the anticipated nearly four-year extension of the Southeastern franchise at decent margins.’
He added this upturn for the rail division of the company was likely to lead to a significant rise in dividend per share over the medium term.
‘The combination of strong earnings growth with attractive yields is an exciting combination,’ he said.
Fenner a ‘dull hold’ after profit warning
Industrial belting manufacturer Fenner (FENR) was a big mover last week, with its shares dropping by more than 10% on Friday after it issued a profit warning.
Fenner said profits for the year would be 10% to 15% down on expectations due to weak demand from the US coal mining industry and its failure to land a key contract in Australia.
FinnCap analyst David Buxton said that following this drop in the shares, he expected the price to ‘remain lacklustre’, and reduced his target price from 450p to 330p, rating them as ‘a dull Hold’. The shares were trading at 350p on Friday's close.
‘The group has announced that trading conditions in the US coal mining market are now expected to remain depressed; it had previously expected an improvement towards the end of its year,’ he said.
‘Also the group was recently unsuccessful in gaining a significant iron ore conveyor belt contract in Western Australia, which it expected to deliver in the fourth quarter and would have had a £2 million impact on profits,’ he added.
‘The shares have previously bounced off the 300p mark, which may form a level of support for the shares, thereafter we would expect the shares to represent a dull hold.’
Ted Baker suits Jefferies
An expected strong set of results for clothing retailer Ted Baker (TED) in the first quarter should serve as a timely reminder of the brand’s strength and an opportunity to buy into its longer term growth potential, according to analysts at Jefferies.
‘We expect TED to report a strong first quarter update (19 weeks to 7 June) with around 15% sales growth – a notable delivery considering the comparable base where they reported 31% growth in retail and 41% in wholesale sales last year,’ they said.
Jefferies also pointed to the company’s global expansion and movement into new markets as reasons for optimism. Ted Baker has opened new stores in Pennsylvania, Queensland and Egypt, launched a personalised men’s suits service at Selfridges and will next month move into upmarket audio products. A £3 million investment in its website should also help it to more than double e-commerce sales over the next three years, they said.
‘These are examples of continued innovation of the brand,’ they said. ‘We believe the recent share price weakness presents a good opportunity to buy in for the longer term.
The analysts rate Ted Baker as a ‘buy’ with a target price of £25. Shares were up 1% at £19.18 on Friday.
London Mining trip reassures
Liberum analysts Richard Knights and Ben Davis have reiterated their ‘buy’ recommendation for London Mining (LOND.L) after a visit to one of the company’s sites.
Knights and Davis examined London Mining’s Marampa mine in Sierra Leone and said they left reassured about production levels.
‘Whilst our recent work has focused heavily on the iron ore price, leverage and balance sheet pinch points which remain the key equity drivers, the trip did reassure us on production volumes where there may be upside to our 4.9mt 2013 estimate, and the timing of the move to cape sized vessels,’ they said.
The pair had reduced 2014 estimates for the company after a weaker-than-expected first quarter, but said production levels were now picking up. The company could also benefit from reduced freight costs, but Knights and Davis see further investment as crucial to its success.
‘The company requires additional funds before the second half of the next trading year in order to deliver its revised capital expenditure plans,’ they said. ‘Investment from a strategic would… deliver a valuation market which we would expect to be comfortably above the current share price.’
Knight and Davis rate the stock a 'buy' with a 91p target price. Shares were down 6% at 39p on Friday.
Drill could deliver thrills for Amara
Encouraging drilling results from Amara Mining’s (AMA) Yaoure Gold Project in the Ivory Coast have led Peel Hunt analyst Michael Stoner to reiterate his ‘buy’ recommendation for the company.
Amara’s executive chairman John McGloin welcomed the results of the drilling programme, saying it had increased confidence in the deposit in the area.
Stoner echoed that confidence. ‘With the process to improve the geological confidence in the Yaoure ore body on-going, and the high likelihood of strengthened project economics, we reiterate our “buy” recommendation and 47p target price,' he said. Shares were on Friday down 2.9% at 17p.