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The Expert View: Hammerson, Smith & Nephew and AG Barr

Our daily roundup of the best analyst commentary on shares, also including Ithaca Energy and Senior.

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Key stats
Market capitalisation£4,265m
No. of shares out713m
No. of shares floating710m
No. of common shareholdersnot stated
No. of employees410
Trading volume (10 day avg.)1m
Profit before tax£323m
Earnings per share45.30p
Cashflow per share45.94p
Cash per share7.95p

*Correct as at 2 Jun 2014

Top performer Hammerson downgraded as discount closes

Once a top performing stock, property developer Hammerson (HMSO) has now been downgraded as the valuation of the shares sit at a seven -year high.

Liberum analyst Jon Stewart downgraded the shares from ‘buy’ to ‘hold’ but increased the target price from 619p to 628p. Shares were up 0.6% at 597.5p yesterday.

‘Hammerson has been the second best performing stock in our coverage year-to-date, buoyed by a UK consumer recovery that we expect to translate to improved rental growth,’ he said. ‘However, at 1.01 times spot net asset value the valuation now sits at a seven-year high and the discount to the FTSE 100 peers has closed.’

He added that any upside would rely on the ‘delivery of growth’ which he expected to be gradual.

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Key stats
Market capitalisation£9,182m
No. of shares out893m
No. of shares floating890m
No. of common shareholdersnot stated
No. of employees11036
Trading volume (10 day avg.)4m
Turnover2,598m USD
Profit before tax332m USD
Earnings per share0.37 USD
Cashflow per share0.60 USD
Cash per share0.09 USD

*Correct as at 2 Jun 2014

Underappreciated Smith & Nephew has a lot further to go, says Barclays

Smith & Nephew (SN), maker of artificial hips and orthotics, is underappreciated by the market, according to Barclays.

Analyst Alexander Kieban retained an ‘equal weight’ rating but lifted the target price a substantial 22% from 780p to 950p, although said the upside case for the stock could rise to as much as £15.00. Shares were down 1.8% at £10.27 yesterday.

‘We think Smith & Nephew is worth 950p in a base case, but we think the market underappreciated the full strategic potential of the company,’ he said. ‘Based on cost/synergy potential and the opportunity for tax rate optimisation we value Smith & Nephew at as much as £13.00 to £15.00 per share.’

Kieban added the company is seen as a ‘developed market ortho player’ but this tag did not ‘give sufficient credit to the company for increasing its exposure to higher growth platforms’.

‘We expect that by 2019 the legacy US ortho business will be as little as 17% of sales,’ he said. ‘On an historical basis, we think the impact of this change has not been fully priced in. We also believe untapped cost reduction/ synergy potential remains underappreciated.’

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Key stats
Market capitalisation£737m
No. of shares out117m
No. of shares floating93m
No. of common shareholdersnot stated
No. of employees999
Trading volume (10 day avg.)0m
Profit before tax£28m
Earnings per share24.35p
Cashflow per share30.13p
Cash per share11.08p

*Correct as at 2 Jun 2014

AG Barr increases capacity with production investment

Soft drinks manufacturer AG Barr (BAG) has announced plans for further investment in Milton Keynes to increase carton production.

Investec analyst Nicola Mallard retained an ‘add’ rating and a target price of 645p on the shares. Shares we up a penny at 626p yesterday.

‘AG Barr has announced the next stage of investment at its Milton Keynes site. This will entail the addition of carton production capacity, which is a core format, used predominantly by [soft drink] Rubicon,’ she said. ‘This is presently undertaken in South Wales and management have commenced a consultation process for this site. The new capacity will be more flexible, faster and result in logistics savings.’

Although Mallard is still waiting for details of the financial implications of the project she retained her target price and said the only key risk was a change in the consumer backdrop.

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Key stats
Market capitalisation£444m
No. of shares out328m
No. of shares floating320m
No. of common shareholdersnot stated
No. of employees50
Trading volume (10 day avg.)1m
Turnover247m USD
Profit before tax86m USD
Earnings per share0.28 USD
Cashflow per share0.59 USD
Cash per share0.12 USD

*Correct as at 2 Jun 2014

Discounted Ithaca upgraded by Peel Hunt

North Sea oil and gas operator Ithaca Energy (IAE) has been upgraded by Peel Hunt analysts on the basis it is trading at a 10% discount.

Werner Riding increased his rating from ‘hold’ to ‘buy’ and improved the target price from 150p to 157p in response to guidance updates at the Greater Stella Area project in the centre of the North Sea and financial results. Shares were up 1% at 136.5p yesterday.

‘Our analysis shows the company is trading at around a 10% discount to core net asset value of 150p… and represents an opportunity to access relatively low-risk, development-led cash flow growth,’ said Riding. ‘Limited exposure to costly exploration drilling should allow debt reduction and provide the potential for selective mergers and acquisitions to drive future net asset value growth over the medium-term.’

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Key stats
Market capitalisation£1,227m
No. of shares out417m
No. of shares floating414m
No. of common shareholdersnot stated
No. of employees6655
Trading volume (10 day avg.)1m
Profit before tax£71m
Earnings per share17.00p
Cashflow per share23.30p
Cash per share12.77p

*Correct as at 2 Jun 2014

Senior downgraded as currency headwinds bite

Aerospace engineering company Senior (SNR) has been downgraded after currency changes damaged trading in the first half of its financial year.

Shore Capital analyst David O’Brien downgraded his recommendation from ‘buy’ to ‘hold’. ‘With the half-year end approaching we have taken the opportunity to revisit our estimates on Senior,’ said O’Brien. ‘While we believe that sterling has probably peaked against the US dollar, the damage has been done to H1 trading. The US dollar is the most significant currency for Senior, followed by the euro, and sterling’s appreciation has taken its toll during H1.’

On the plus side, O’Brien expects good growth in large commercial aerospace and increased build rates.

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