The Expert View: Hargreaves Lansdown, Burberry, Tullow Oil
A round-up of the best analyst commentary on shares, also including Fenner and Taylor Wimpey.
Hargreaves’ aggressive pricing doesn’t deter analysts
News of Hargreaves Lansdown’s (HRGV.L) new pricing structure was welcomed by analysts despite it wiping at least £8 million off 2013 revenues.
Barclays analyst Daniel Garrod said the pricing, which sees customere with £250,000 of assets or less pay 0.45% a year, was more aggressive than anticipated and meant that the shift was no longer financially neutral for the platform.
However, the competitive pricing meant Hargeaves has set itself in good stead for the future when its competitors were forced to make their pricing more explicit under the retail distribution review (RDR) rules. It would also benefit from ‘superclean’ discounts given by fund groups to the platform for its bulk business.
‘We believe this is a sensible strategy to pre-empt competition from discounters before it can become more established,’ said Garrod. ‘We believe HL’s distribution and brand are very strong, resulting in it attracting large amounts of additional flows post the RDR opportunity.’
Garrod placed a target price of £15.08 on the shares and retained his ‘overweight/positive’ recommendation.
Hargreaves shares fell 4.18%, or 63, to finish at £14.45 on Wednesday.
Digital sales keep Burberry on trend
British fashion stalwart Burberry (BRBY.L) pleased shareholders with Q3 sales that were £11 million better than forecast at £528 million.
Nomura analyst Christopher Walker said the 12% increase could be traced back to improved digital sales and a ‘brand halo effect’ from the men’s Brit Rhythm fragrance that ‘complemented a strong co-ordinated festive offer’. Chinese sales were also into double-digit growth.
However, with a good proportion of sales made overseas Burberry chief executive Angela Ahrendts warned that currency exchange rates would be ‘a significant headwind in the second half and beyond’.
Walker maintained a ‘neutral’ stock rating and a target price of £16.30.
‘In our view, growing the size of the Burberry brand will be the key to driving further modest improvements in the…[earnings] margins,’ he said. ‘While we think management change, beauty execution and Japan remain top of investors’ minds in a difficult market environment, Burberry’s digital approach and retail execution should reassure.’
Burberry shares shot up 4.63%, or 68p, to finish the day £15.37 on Wednesday.
Tullow Oil outlook lowered despite Kenyan discoveries
Further success in Kenya for oil explorer Tullow Oil (TLW.L) has given confidence to analysts but there is still some concern over the timing of the find.
Liberum analyst Andrew Whittock placed a target price of £14.76 on the shares and maintained a buy recommendation.
He said the finds needed to be sanctioned by the Kenyan government and therefore expected a ‘small downward revision to forecasts’ but ‘retained a positive view on the share’.
Tullow management expect around 79-85 million barrels of oil equivalent per day to be produced in 2014, which is slightly lower than the Liberum prediction of 86.4, reducing cash flow forecasts.
‘The Tullow investment case is driven by a view on its ability to add new reserves and we remain optimistic, particularly if further early monetisation of assets is planned,’ said Whittock.
Tullow shares closed up 0.76%, or 6.5p, at 863p on Wednesday.
Currency woes keep Fenner at ‘sell’
Conveyor belt speciality Fenner (FENR.L) is still a ‘sell’ for Investec as currency exchange continues to take its toll.
Analyst Michael Blogg reduced profit before tax estimates by £4 million to account for currency and lowered the target price to 380p from 390p.
‘We recently reassessed the impact of currency for Fenner, on account of sterling’s rise against the US and Australian dollars and various other currencies,’ he said. ‘Part of the year-on-year currency headwind for FY13 was already reflected in our estimates but we are adjusting by another £4 million today.’
On the positive side Blogg said as half of Fenner’s business was in North America the company has ‘longer term attractions for investors seeking exposure to rising levels of US confidence’.
Fenner shares closed the day up 0.94%, or 4.3p, at 459p on Wednesday.
Taylor Wimpey target price up but uncertainty over capital plans remains
Jefferies has increased its target price for housebuilder Taylor Wimpey (TW.L) to 141p from 132p although capital allocation still remains the ‘elephant in the room’.
Analyst Anthony Codling increased his estimates for pre-tax profits for the next three years after the group added 10,000 more plots to its ‘strategic landbank’ and approved the purchase of 15,667 plots during 2013. He added that ‘attractive land opportunities remain’ and land bought in 2009 ‘will underpin earnings for several years to come’.
However, he said the fact that there is as yet no more detail on capital allocation plans meant ‘the capital return elephant in the room [was] obscuring a corner of the window’.
‘True to its word, the group did not provide details of its future capital allocation plans; a full update will be provided on 26 February at the full year results,’ said Codling. ‘While the update will be welcome, we believe that the shares are attractively valued before any capital plans are priced in.’
Codling maintained a ‘buy’ recommendation on the shares.
Taylor Wimpey shares dropped 1.67%, or 2p, to finish Wednesday at 117p.