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The Expert View: Imperial Tobacco, Vodafone and Travis Perkins

A roundup of some of the best analyst commentary on shares, including Experian and ICAP.

Our daily round-up of analyst recommendations and commentary, featuring Imperial Tobacco, Vodafone, Travis Perkins, Experian and ICAP.

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Key stats
Market capitalisation£22,896m
No. of shares out988m
No. of shares floating977m
No. of common shareholdersnot stated
No. of employees37200
Trading volume (10 day avg.)2m
Turnover£28,574m
Profit before tax£678m
Earnings per share67.92p
Cashflow per share123.71p
Cash per share63.73p

*Correct as at 8 Feb 2013

Investec downgrades Imperial Tobacco following disappointing Q1

Investec analyst Martin Deboo has downgraded Imperial Tobacco Group (IMT.L) from 'buy' to 'hold' following a weak set of first quarter results.

'The Q1 felt like a signal event to us. Sales were barely ahead against a weak comp and profit is set to be lower in H1, as tough conditions in Europe and elsewhere press on IMT’s organic growth aspirations,' he said.

'Sure, there is support from the valuation and the prospect of a takeout. But we don’t think the latter is imminent enough and while IMT looks cheap, it doesn’t look that cheap in the current Darwinian climate.

'And planned cost optimisation looks challenging when IMT starts with some of the best margins in the industry.' Deboo's target price falls from £25.80 to £24.50.

Shares in the group closed at £23.08p on Friday, down 38.4p or 1.6%.

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Key stats
Market capitalisation£85,906m
No. of shares out49,181m
No. of shares floating48,858m
No. of common shareholdersnot stated
No. of employees86373
Trading volume (10 day avg.)100m
Turnover£46,417m
Profit before tax£5,481m
Earnings per share10.76p
Cashflow per share29.17p
Cash per share17.04p

*Correct as at 8 Feb 2013

Merrill Lynch upgrades Vodafone as Neil Woodford drops his stake

Merrill Lynch analyst Emmet Kelly has upgraded Vodafone (VOD.L) from 'hold' to 'buy', arguing that the shares are still a good buy despite reduced forecasts for revenue growth.

'Vodafone shares have seen sharp downgrades over the past 15 months – with consensus March 2014E earnings per share estimates declining by about 13% (since Oct 2011),' he said. 'However, we believe the consensus downgrade cycle is now ending.'

Kelly believes strong US earnings growth of 13% this year, plus a stronger euro and dollar against the pound, will see forecasts bottom out.

'We believe that Vodafone’s valuation is attractive,' he said. 'The US represents hidden value: rising US dividends, partial stake sale or full take-over should unlock hidden value.'

Star fund manager Neil Woodford doesn't share the analyst's optimism, however, and has sold his long-standing stake due to reduced forecasts for revenue growth and concerns about its ability to maintain margins.

Shares in the group closed at 174.6p on Friday, up 2.8p or 1.6%.

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Key stats
Market capitalisation£3,073m
No. of shares out244m
No. of shares floating226m
No. of common shareholdersnot stated
No. of employees21423
Trading volume (10 day avg.)0m
Turnover£4,779m
Profit before tax£212m
Earnings per share87.33p
Cashflow per share118.91p
Cash per share33.09p

*Correct as at 8 Feb 2013

Shore Capital downgrades Travis Perkins

Travis Perkins (TPK.L) shares have risen far enough over the past year to persuade Shore Capital analyst Jon Bell to reduce his recommendation from 'buy' to 'hold'.

Over the past 12 months the shares have risen over 30%. Bell identified three key factors for the company, whose revenues are almost entirely UK derived.

First is consumer confidence. 'While there has been some improvement of late... it is worth noting that the same survey highlighted that people’s views of their own financial situation are less than positive with no improvement expected in the next 12 months,' Bell said.

The second factor is housing transactions. 'It remains the case that housing transactions are unlikely to materially increase in the medium term in our view,' he said.

The final big factor is GDP. 'Raising the prospect of a less than stellar economic backdrop (and certainly not eliminating the risk of the dreaded ‘triple dip’), we also note recent downgrades to 2013 forecasts – the National Institute of Economic and Social Research (NIESR) is now forecasting growth of just 0.7% in 2013.

'With these factors in mind, and with the company’s shares now trading on a 2013F p/e multiple of 12.2x, falling to 10.8x in 2014, we downgrade our recommendation on Travis Perkins from Buy to HOLD.'

Shares in the group closed at £12.57 on Friday, up 7.1p or 0.6%.

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Key stats
Market capitalisation£11,095m
No. of shares out1,010m
No. of shares floating1,003m
No. of common shareholdersnot stated
No. of employees15737
Trading volume (10 day avg.)2m
Turnover2,855m USD
Profit before tax421m USD
Earnings per share0.42 USD
Cashflow per share0.85 USD
Cash per share0.16 USD

*Correct as at 8 Feb 2013

UBS upgrades Experian to 'buy'

UBS analyst William Vanderpump has upgraded credit scoring business Experian (EXP.L) from 'neutral' to 'buy', saying the high barriers to entry provide reassurance about the group's potential to expand.

'We believe Experian has one of the strongest market positions of any company in our sector, with extremely high barriers to entry,' he said. 'Experian’s structural position presents solid organic growth prospects and we expect Experian’s premium growth to continue (7.7% 2012-16e organic compound annual growth rate), with potential upside if positive data in Brazil is successful.

'We also like Experian’s high cash-generation, and continued investment into new markets and verticals, and believe the underperformance in 2012 is an opportunity to upgrade to Buy, PT 1,300p.'

Experian is a Citywire Top Stock based on its top 10 position in the AXA Framlington UK Select Opportunities fund run by Nigel Thomas. Experian shares closed at £10.99 on Friday, up 16.5p or 1.5%.

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Key stats
Market capitalisation£2,290m
No. of shares out646m
No. of shares floating530m
No. of common shareholdersnot stated
No. of employees5123
Trading volume (10 day avg.)2m
Turnover£1,681m
Profit before tax£137m
Earnings per share20.82p
Cashflow per share38.60p
Cash per share84.67p

*Correct as at 8 Feb 2013

JPM lifts target price for ICAP

JP Morgan analyst Rae Maile has increased interdealer broker ICAP (IAP.L)'s target price in spite of weak third-quarter trading.

Friday's interim management statement covered the period from 1 October 2012, and warned that there was a 'pronounced slowdown in global broking volumes in December'.

Third-quarter revenues were down 13% year-on-year, following a 14% decline in the first half of the year.

'We are modestly reducing our current year and prospective estimates to reflect today's statement, although our December 2013 price target rises because of a rerating of peers,' Maile said. 'Given uncertainty over market activity levels and the ongoing uncertainties regarding Libor [rate fixing investigation by regulators] we retain a neutral recommendation.'

Shares in the group closed at 354p on Friday, up 1.4p or 0.4%.

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