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The Expert View: Imagination, SuperGroup, AstraZeneca

A round-up of analysts’ commentary on shares, also including Sports Direct and Go-Ahead.

Our daily round-up of analyst recommendations and commentary, featuring Imagination Technology, Sports Direct, SuperGroup, AstraZeneca and Go-Ahead.

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Key stats
Market capitalisation£4,201m
No. of shares out598m
No. of shares floating218m
No. of common shareholdersnot stated
No. of employees14076
Trading volume (10 day avg.)1m
Turnover£2,186m
Profit before tax£152m
Earnings per share24.42p
Cashflow per share32.90p
Cash per share24.63p

*Correct as at 12 Dec 2013

Sports Direct needs to become an online player

Sportswear retailer Sports Direct’s (SPD.L) interim results may have been ‘a little light of expectations’ but there are still opportunities online to be explored.

Cantor Fitzgerald analyst Freddie George has put a target price of 680p on the shares that remain a ‘hold’. He noted that the stock has almost doubled over the past year and is ‘due a period of consolidation’.

The company benefitted last year from the Olympics and competitor JJB going into administration but over the medium term it would continue to benefit from a move into ‘tangential sporting categories’ including fishing and swimming and expanding the brands it stocks.

‘The most significant opportunity, in our view, though continues to be the development of the company’s online platform as the company endeavours to be the ‘category killer’ sportswear and sports product site,’ said George. ‘Internet sales increased 43% and now contribute 15.5% of sports retail sales in [the six months to October].’

Shares in the sportswear retail took a hit, ending 10%, or 83.5p down, at 687p.

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Key stats
Market capitalisation£507m
No. of shares out266m
No. of shares floating239m
No. of common shareholdersnot stated
No. of employees1249
Trading volume (10 day avg.)1m
Turnover£151m
Profit before tax£6m
Earnings per share2.28p
Cashflow per share5.33p
Cash per share28.82p

*Correct as at 12 Dec 2013

Imagination upgraded by Liberum, but not everyone agrees

Analysts couldn’t agree on the future of Imagination Technology (IMG.L) shares, with one upgrading to a ‘buy’ from ‘hold’ and one lowering the target price.

Computer chip designer Imagination was upgraded to a ‘buy’ by Liberum’s Eoin Lambe, who set a share price of 250p, as he believes ‘long term value has emerged after the recent share price weakness’ and the long-term business model had not altered.

Lambe said the current price was an ‘ideal entry point for long term investors’.

However, Imagination had its target price downgraded to 185p by Canaccord Genuity on concerns ‘there is the risk that Imagination does not expand margins over the next couple of years’ while operating expenses continued to rise. Analyst Bob Liao added that saturation in the smartphone market meant competition is increasing and ‘the original business alone may struggle to accelerate growth’.

Analysts may not have made up their minds on the group but investors did, with shares ending the day 10%, or 20.5p, down at 169.5p.

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Key stats
Market capitalisation£712m
No. of shares out43m
No. of shares floating39m
No. of common shareholdersnot stated
No. of employees23563
Trading volume (10 day avg.)0m
Turnover£2,572m
Profit before tax£54m
Earnings per share124.60p
Cashflow per share297.69p
Cash per share580.18p

*Correct as at 12 Dec 2013

End of the line for Go-Ahead Southern franchise, but still a buy

Bus and train operator Go-Ahead (GOG.L) has increased its 2014 expectations for its Southern railway line, but analysts at Jefferies reminded investors that any benefit will be short-lived as the franchise on the network expires in 2015.

Jefferies analyst Joe Spooner said the Southern line will add ‘a few £m to our rail and group forecasts’ but noted it ‘is mindful that Southern will expire in July 2015 when it will merge into the new TSGN franchise, so the performance uplift will be short lived’.

He said securing further franchises will be ‘more material’ to Go-Ahead’s future margins.

Go-Ahead closed 2.2%, or 36.9p, up at £16.64.

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Key stats
Market capitalisation£981m
No. of shares out80m
No. of shares floating39m
No. of common shareholdersnot stated
No. of employees2022
Trading volume (10 day avg.)0m
Turnover£360m
Profit before tax£36m
Earnings per share44.29p
Cashflow per share67.24p
Cash per share67.74p

*Correct as at 12 Dec 2013

SuperGroup brand continues to shine

Investec has reiterated its ‘buy’ recommendation for fashion retailer SuperGroup (SPZ.L) following strong half year results and sustainable ‘brand momentum’. Analyst Kate Calvert placed a target price of 12.22p on the shares after profits before tax of £17.9 million were announced and said ‘SuperGroup’s long term growth potential’ more than justifies a premium valuation. ‘We believe the strong brand momentum is sustainable and will come from owned new space growth in the UK and internationally as well as franchise growth,’ said Calvert. ‘In addition there is potential to stretch the brand into new product categories and grow womenswear as well as online.’

Shares closed down 1.13%, or 14p, at £12.39.

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Key stats
Market capitalisation£42,954m
No. of shares out1,255m
No. of shares floating1,252m
No. of common shareholdersnot stated
No. of employees51700
Trading volume (10 day avg.)2m
Turnover17,010m USD
Profit before tax3,829m USD
Earnings per share3.03 USD
Cashflow per share3.63 USD
Cash per share4.16 USD

*Correct as at 12 Dec 2013

AstraZeneca patent loss could hit long-term opportunities

The loss of patent protection could see pharmaceutical giant AstraZeneca (AZN.L) head into a ‘multi-year decline’, according to Barclays analysts led by Mark Purcell.

Purcell and his team retain a ‘hold’ on AstraZeneca and set a target price of £30.50 for the shares. Next year marks the loss of patent protection for older drugs and Purcell said the ‘group is becoming increasingly dependent on relatively few drugs…whose commercial success remains open to question’.

However he added that the management ‘continues to engage in strategic partnering and business development to augment growth’.

‘AstraZeneca is accelerating investments in its key growth platforms and pipeline assets as it looks to revive growth in what is arguably the most generic-exposed pharmaceutical business across European pharmaceuticals,’ said Purcell. ‘However, recently acquired companies and in-licenced assets are insufficient to stave off continued revenue decline on our forecasts.’

Over the 10 years to 2022, Barclays predicts a compound annual growth rate in revenues of -2%.

AstraZeneca shares closed down marginally at £34.43, a fall of 3.8p or 0.11%.

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