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The Expert View: M&S, National Grid and Aviva

A roundup of some of the best analyst commentary on shares, also including Carnival and Morgan Crucible.

Our daily round-up of analyst recommendations and commentary, featuring Marks and Spencer, National Grid, Aviva, Carnival and Morgan Crucible.

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Key stats
Market capitalisation£6,488m
No. of shares out1,608m
No. of shares floating1,589m
No. of common shareholdersnot stated
No. of employees81208
Trading volume (10 day avg.)6m
Profit before tax£513m
Earnings per share32.23p
Cashflow per share60.28p
Cash per share28.44p

*Correct as at 18 Mar 2013

Don't hold your breath for M&S takeover, Cantor Fitzgerald says

Speculation that Qatar could be set to buy Marks and Spencer (MKS.L) isn't likely to come to anything, according to Cantor Fitzgerald analyst Freddie George.

The shares surged over 7% yesterday morning amid speculation that the Qatar Investment Authority is planning a £8 billion takeover. If successful it would be the biggest takeover of a FTSE 100 firm since US buyout group KKR paid £11 billion for Alliance Boots.

However, George believes there are a number of reasons why a takeover isn't likely. First off, Qatar's track record in UK retailing is decidedly mixed, with the £5 per share it paid for its 26% stake in Sainsbury's translating into a loss to date even when dividends are factored in.

'The property assets, valued at £2.7 billion at March 2012 will, we believe, be hard to dispose of,' he added. 'Most leading property companies are looking to dispose of high street and out of town sites due to a difficult retail environment to concentrate on shopping malls and prestige city centre sites.

'On balance, we believe a bid is unlikely, although while equity markets are close to record highs takeover speculation is likely to remain over the medium term.'

The analyst reiterated his 'hold' recommendation on the shares, and a 350p target price.

Shares in the group closed at 401.5p on Monday, up 29p or 7.8%.

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Key stats
Market capitalisation£26,913m
No. of shares out3,638m
No. of shares floating3,489m
No. of common shareholdersnot stated
No. of employees25645
Trading volume (10 day avg.)7m
Profit before tax£2,036m
Earnings per share55.77p
Cashflow per share91.18p
Cash per share56.28p

*Correct as at 18 Mar 2013

National Grid: UK's lowest-risk utility?

National Grid (NG.L) is the UK's lowest-risk utility stock, according to JP Morgan analyst Edmund Reid, who has upgraded the firm from 'underweight' to 'neutral'.

'We think that the investment case for Grid remains mixed,' the analyst said. 'In our view, the valuation is full (26% premium to March 14 regulatory asset value) with limited earnings growth.

'However, with the regulatory review now complete and eight years of visibility for over 60% of the business, we view Grid as the lowest-risk stock in the UK utilities sector.' The company's decision to accept Ofgem's Final Proposals reflects its commitment to maintain its dividend, he said.

Reid's numbers indicate the shares currently offer a 5.7% yield, which he expects to rise in line with inflation. 'We expect this to be sufficient to support the share price and so we are upgrading our recommendation to Neutral from Underweight,' he concluded. His target price rises from 640p to 720p.

Shares in the group closed at 735p on Monday, up 1p or 0.1%.

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Key stats
Market capitalisation£9,507m
No. of shares out2,946m
No. of shares floating2,908m
No. of common shareholdersnot stated
No. of employees36562
Trading volume (10 day avg.) 24m
Profit before tax£-442m
Earnings per share-15.19p
Cashflow per share-9,999,999.00p
Cash per share777.23p

*Correct as at 18 Mar 2013

Berenberg Bank downgrades dividend-deprived Aviva

Berenberg Bank analyst Matthew Preston has downgraded insurance group Aviva (AV.L) from 'buy' to 'hold' in the wake of its decision to slash its final dividend 44% earlier this month.

The decision to cut the dividend, which saw the shares lose almost 13% on the day of the announcement, was fuelled by increased regulatory scrutiny, Preston said.

'While a material reduction in the internal leverage was not on management’s agenda when the restructuring plans were laid out, we believe that pressure from the FSA has resulted in what is now a formalised £5.8 billion loan and a plan to repay £600 million over the next three years,' he said.

'Given our view that leverage reduction will continue to take priority over shareholder returns, we downgrade to hold and reduce our price target to 350p.' The analyst's target price drops from 470p to 350p.

Shares in the group closed at 323.3p on Monday, down 2.9p or 0.9%.

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Key stats
Market capitalisation£17,818m
No. of shares out776m
No. of shares floating568m
No. of common shareholdersnot stated
No. of employees85400
Trading volume (10 day avg.)1m
Turnover10,178m USD
Profit before tax859m USD
Earnings per share1.10 USD
Cashflow per share2.40 USD
Cash per share0.40 USD

*Correct as at 18 Mar 2013

Shore Capital downgrades Carnival

A disappointing update from cruise-line operator Carnival (CCL.L) has prompted Shore Capital analyst Greg Johnson to downgrade the firm from 'buy' to 'hold'.

Friday's first-quarter results were encouraging, with earnings coming in at the top end of guidance. However, the outlook statement wasn't so positive, with revenue yield guidance lowered from plus 1-2% to broadly flat. The company blamed recent high-profile problems with some of its Carnival Cruise ships, coupled with weaker trading in Europe.

'The downgrade is disappointing especially set against our views that the company’s guidance maybe increased as the year progresses,' Johnson said. 'The medium-term investment story at Carnival, of slowing capacity growth leading to improved returns, profitability and cash flow, remains intact – although the $4 per share of earnings may not be until 2018.

'Carnival needs to demonstrate it can deliver positive top-line momentum before the medium-term investment case comes back to the fore,' he added.

Shares in the group closed at £23.23 on Monday, down 56p or 2.4%.

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Key stats
Market capitalisation£849m
No. of shares out281m
No. of shares floating276m
No. of common shareholdersnot stated
No. of employees10028
Trading volume (10 day avg.)1m
Profit before tax£56m
Earnings per share19.86p
Cashflow per share34.61p
Cash per share28.41p

*Correct as at 18 Mar 2013

Jeffries: bide your time on 'unloved' Morgan Crucible

Industrial ceramics specialist Morgan Crucible (MGCR.L)'s valuation is attractive, according to Jeffries analyst Andy Douglas, but it's a bit too early for him to upgrade his 'hold' recommendation.

The company's annual results were better than Douglas had expected, but underlying pre-tax profits were still down 25% on last year at £89.7 million, and reorganisation plans revealed last week weren't as radical as he'd hoped they might be.

'The group is generally unloved, and the group's valuation differential with the UK Industrial sector is reasonably appealing,' the analyst said. 'However, we stay at Hold until there is greater comfort with our full-year forecasts.' His target price rises from 260p to 320p.

Shares in the group closed at 300.5p on Monday, down 4.5p or 1.5%.

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