The Expert View: Lancashire, Hargreaves Lansdown and Cobham
Our daily roundup of the best analyst commentary on shares, also including InterContinental Hotels and Henderson.
Lancashire downgraded after falling short again
Lancashire (LRE), the specialist insurer whose focuses include aviation, marine and terrorism risk, has been downgraded after poor interim results that show it is ‘uncomfortable in its own skin’.
Peel Hunt analyst Mark Williamson downgraded his recommendation from ‘hold’ to ‘sell’ and lowered his target price from 643p to 583p. Shares were trading at 596.9p yesterday.
‘Recent interim results did little to sooth our concerns, having again fallen short of expectations and resulting in our downgrading our December 2014 profit before tax forecasts by 20% to $189 million,’ he said.
‘While Lancashire is undoubtedly doing some sensible things, including buying more reinsurance protection, it appears to be struggling to find its place in changed market conditions, and we remain concerned by the abrupt departure of [founder and chief executive] Richard Brindle.’
‘Under review’ Cobham meets ‘cautious’ consensus
Defence and security specialist Cobham (COB) is under review after first-half results that will ‘keep both the bears and bulls busy’.
Investec analyst Rami Myerson placed his ‘reduce’ recommendation and target price of 310p ‘under review’. Shares rose 3.2% to 296.3p yesterday on the results.
‘Cobham H1 results are in line with consensus expectations, which were set at a cautious level. This will likely reassure the bulls after a number of slip-ups in recent years,’ he said.
‘Revenues down organically by c.4%, a 15.5% earnings before interest and tax margin and weak cash flow are not inspiring given the restructuring Cobham is benefitting from…We place our rating and price target “under review” after the decline in Cobham’s shares since June.’
Hargreaves Lansdown upgraded on share price weakness
Stockbroking giant Hargreaves Lansdown (HRGV) has been upgraded after a tough year that saw the introduction of stricter regulation.
Numis analyst James Hamilton upgraded his recommendation from ‘hold’ to ‘buy’ but retained a target price of £12.22 on the stock. Shares were trading 1.5% higher yesterday at £10.48.
‘The group’s revenue model has been fundamentally altered [by the new rules] and undoubtedly some customers will have been made worse off, despite the vast majority being better off,’ he said.
‘We believe the group has a very strong market position in a market that is experiencing structural growth…We believe a few customers will have left, there will have been a modest amount of yield compression over and above that already highlighted by the group and it is also possible that the frenetic pace of customer acquisition could have slowed a little.’
While Hamilton expected margins to fall he said the fundamental model remained ‘robust’ while the group’s ‘superior customer service and best in market unit pricing’ would serve as ‘powerful drivers’. On the back of recent share price weakness he upgraded to ‘buy’.
InterContinental offloads Le Grand for the right price
The swift sale of Le Grand Hotel in Paris by InterContinental Hotels (IHG) was a surprise to Shore Capital analysts who believe the majority of the proceeds will be returned to shareholders.
Shore Capital analyst Greg Johnson reiterated a ‘sell at £22.78’ recommendation following the offloading of the hotel for $442 million (£262.5 million) or $940,000 a room which was ‘consistent’ with his expectations although he expected the figure to be partly offset by £60 million of spending commitments. InterContinental fell 1.8% to £22.37 in yesterday's trading.
‘Although an eventual disposal was expected, given the ongoing strategic review, the quickness of the sale is surprising,’ he said. ‘Although initially modestly earnings dilutive we would expect the majority of proceeds to be returned to shareholders – c.$300 million would leave the leverage position broadly unchanged – leaving the disposal broadly earnings neutral.’
He added: ‘The disposal of Le Grand leaves just Hong Kong remaining of the original “big four” properties which we expected to be sold over the medium term. We continue to view the current valuation as rich given the pace of the system size growth, [with] double multi-decade system growth discounted for China, although note the current strength in underlying trading.’
Henderson looking strong after first half results
First half results for asset management group Henderson (HGG) show ‘real progress’ but some risks still remain.
Bank of America Merrill Lynch analyst Philip Middleton retained a ‘neutral’ recommendation and target price of 260p on the shares after first half results reported £5 billion of inflows although profit before tax was 5% below estimates. Henderson fell 6.1% to 226.7p in yesterday's trading as a result.
‘We think that Henderson has had a half of strong delivery. If anything, our estimates might edge up, but we suspect consensus may be a bit disappointed,’ he said. ‘More important than one half’s numbers, we think, is the continued evidence that the company is delivering strong, diversified asset growth.
‘We are ‘neutral’ on Henderson because we think valuation is reasonable but not cheap, and because of worries about European regulation, especially commission unbundling. It is though, in our view a company with strong business momentum.’