The Expert View: Go-Ahead, Premier Oil & Charles Stanley
A roundup of the best analyst commentary on shares, including Rolls-Royce and London Stock Exchange.
Jeffries pleased that Go-Ahead is on the right tracks
A pre-close trading statement from Go-Ahead Group (GOG) impressed Jeffries analyst Joe Spooner that all is well with the rail and bus operator.
Go-Ahead shares motored 92p or 4.2% to £22.69 as its fourth quarter trading statement promised higher profits and reduced debt.
Spooner retained a ‘buy’ rating and target price of £25.90 on the stock. ‘Go-Ahead's pre-close continues to guide bus earnings before interest and tax on course for £100 million by full-year 2016,’ he said. ‘There’s also a steered upgrade within the rail unit, though we assume this to be limited to full-year 2014,’ he said.
Headline debt looked ‘better than expected’ at £70 million by the end of the year, Spooner added.
The trading improvements are the icing on the cake for Go-Ahead which last month won the Thameslink franchise from FirstGroup. ‘[The Thameslink] win has clearly been the material development recently, but today’s update is a welcome reminder that the existing business continues to improve to plan,’ said Spooner.
Premier Oil disappoints Numis with Norwegian sale
Numis Securities has downgraded Premier Oil (PMO) to ‘add’ from ‘buy’ after it sold a stake in a Norwegian well for much less than its analysts expected.
Analyst Sanjeev Bahl retained a target price on the shares of 397p but expressed his disappointment at Premier’s sale of 30% of its stake in the Luno II site for $17.5 million post tax. Bahl had valued the holding at $95 million.
‘Tuesday’s disposal of a 30% equity interest in Luno II was below our price expectations – we believe Premier took a negative view on area-wide resource potential after Lundin [Petroleum] found poor quality reservoir in the southern segment of Luno II and decided to monetise its non-operated stake,’ said Bahl.
He said he would need to see evidence of management monetising other assets before increasing his rating again.
The shares added 1.5p or 0.4% to 342p yesterday.
Compliance costs weigh on Charles Stanley, says Peel Hunt
Peel Hunt reduced its target price for shares in Charles Stanley (CAY) after the wealth manager’s full-year results were marred by the increasing cost of compliance and regulation.
Analyst Stuart Duncan retained a ‘hold’ rating but cut the target price from 530p to 460p.
‘Final results from Charles Stanley highlight the significant extra costs that have been borne over the last year,’ he said. ‘While revenues rose by 17%, costs rose by 21%, driven mainly by growth-related and regulatory/compliance costs.’
He also reduced full-year 2015 forecasts by 7%. The 2014 results met Duncan’s lowered expectations with profits before tax of £13.5 million and earnings per share of 22.8p. ‘On our lower expectations, Charles Stanley is trading on a December 2014 enterprise value /net operating value after tax of 14, lower than the sector average of 16.5 excluding Hargreaves Lansdown,’ he said.
‘We reduce our target price to 460p, maintaining our “hold” recommendation, believing that further upside depends on evidence that the cost base has stabilised.’
The shares traded broadly unchanged at 423.3p yesterday.
Rolls-Royce share buy-back cheers analysts
Ben Bourne of Investec Securities was relieved at Rolls-Royce’s (RR) decision to launch a £1 billion share buy-back with the proceeds of the sale of its energy business to Siemens.
Shares in the aerospace engine maker soared 79p or 7.8% to £10.88 as it reassured investors earnings would grow this year.
Bourne retained a ‘buy’ rating and a target price of £10.11 on the shares.
He said: ‘There has been plenty of food for the bears recently – the Q1 downgrade… and 3.5% order book reduction due to the Emirate’s A350 cancellation… Today’s reiteration of guidance will be well received as the above had led some to believe in another downgrade,’ he said.
‘No material acquisitions are planned, which is a relief in itself as many investors were still concerned they would make another play for Wartsila post-July requiring more equity. As a result, there will be a share buy-back of £1 billion subject to the completion of the sale of its energy business to Siemens. The aim is to do this by year end.’
Barclays ups London Stock Exchange price target
Barclays Capital has raised its target price for shares in the London Stock Exchange (LSE) by 3% from £22.00 to £22.60.
Analyst Daniel Garrod was confident that despite signs of market ‘fatigue’ and a weakening market in flotations, LSE would generate increases in earnings per share.
Reiterating his ‘overweight’ rating he said: ‘The European volume outlook appears to be deteriorating across most asset classes in 2014.’
‘The primary pipeline has been vibrant for LSE in 2014, but may also be showing some signs of fatigue. Despite this, we still project good earnings per share growth,’ he said.
‘The LSE is in the process of aligning its year-end with that of most of its global exchange peers,’ he said. ‘We publish here for the first time forecasts assuming the new year-end. For December 2014 we project diluted earnings per share of 113p and for full-year 2015, 128p. As such the LSE is trading at 15 times 2015 price earnings, which we believe is attractive.’The shares closed 28p or 1.5% higher at £19.36