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The Expert View: Meggitt, Intertek and Imagination Technologies

Our daily roundup of the best analyst commentary on shares, also including Hill & Smith and Latchways.

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Key stats
Market capitalisation£3,853m
No. of shares out806m
No. of shares floating801m
No. of common shareholdersnot stated
No. of employees10715
Trading volume (10 day avg.)2m
Turnover£1,637m
Profit before tax£232m
Earnings per share28.89p
Cashflow per share48.61p
Cash per share14.57p

*Correct as at 5 Aug 2014

Hold your nerve on Meggitt, says Jefferies

Global engineering group Meggitt (MGGT) may have reported weaker first half results but the story isn’t over for Jefferies.

Analyst Sandy Morris retained a ‘hold’ rating and a target price of 550p on the shares, which fell 4.7% to 480p in yesterday's trading.

‘Trading in H1 2014 appears to have been weaker than we and Bloomberg consensus expected, notably the 13% decline in military sales, modest growth of 2% in civil aftermarket sales, and underlying earnings before interest and taxation 13% below Bloomberg consensus,’ he said.

‘That will not go down well initially, but the Meggitt equity story has not been derailed, in our view. With orders up 9% on an organic basis and civil aftermarket orders up 17% within that, there are signs of life for H2 and beyond.’

Morris added: ‘It may be difficult to hold one’s nerve [following the H1 results] but the robustness of the equity story may be proven as soon as H2.’

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Key stats
Market capitalisation£4,434m
No. of shares out161m
No. of shares floating160m
No. of common shareholdersnot stated
No. of employees34882
Trading volume (10 day avg.)0m
Turnover£2,054m
Profit before tax£174m
Earnings per share106.69p
Cashflow per share174.52p
Cash per share103.54p

*Correct as at 5 Aug 2014

Intertek upgraded as it sets sights on acquisitions

Quality and safety service provider Intertek (ITRK) has been upgraded after ‘turning a corner’.

Numis analyst Steve Woolf upgraded the stock from ‘hold’ to ‘add’ but retained a target price of £31.00 on the shares, which have been rallying since it issued its results on Monday, up 8.9% over the two days at £27.55.

‘Following a period of share price underperformance, we believe that Intertek has turned a corner, and management’s confidence is increasing,’ said Woolf. ‘Softer H2 comparatives, and the scope for acquisitions provide the opportunity for improving momentum over the next 12 months.’

He added that while short-term performance had been dampened by ‘weaker macro and the impact of restructuring efforts’, the balance sheet was strong.

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Key stats
Market capitalisation£111m
No. of shares out11m
No. of shares floating10m
No. of common shareholdersnot stated
No. of employees255
Trading volume (10 day avg.)0m
Turnover£39m
Profit before tax£6m
Earnings per share50.63p
Cashflow per share59.99p
Cash per share91.39p

*Correct as at 5 Aug 2014

Latchways’ recovery not keeping pace with share price

Safety products maker Latchways’ (LATC) share price is outpacing recovery, making it a ‘sell’ for Peel Hunt.

Analyst Christopher Bamberry retained a ‘sell’ rating and target price of 980p following its interim statement for the first four months of the year.

‘Latchways has stated that management’s view on the year as a whole remains unchanged,’ he said.

‘The business has seen a modest uptick in UK horizontal orders. However, customer destocking is affecting North American sales.

‘In our opinion the 18 times March 2015 price/earnings ratio is too high, given the projected pace of recovery.’

He added that the strength of sterling had impacted margins, ‘adding an unwelcome degree of uncertainty’.

Shares yesterday fell 4.4% to 980p on news of the results.

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Key stats
Market capitalisation£403m
No. of shares out78m
No. of shares floating72m
No. of common shareholdersnot stated
No. of employees3615
Trading volume (10 day avg.)0m
Turnover£445m
Profit before tax£23m
Earnings per share29.26p
Cashflow per share50.76p
Cash per share12.86p

*Correct as at 5 Aug 2014

‘Cheap’ Hill & Smith upgraded by Investec

Specialist barrier manufacturer Hill & Smith Holdings (HILS) has been upgraded to reflect its cheap share price and strong interim results.

Investec analyst Thomas Rands upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 560p to 600p. Shares rose 2.4% to 520p yesterday.

‘Hill & Smith delivered strong interims combined with a positive outlook for H2 2014. We upgrade our full year 2014 and 2015 earnings per share by 2.5% and 3.9%, fully offsetting the negative impact of foreign exchange, and reflecting good operation progress together with an improving out-turn, in particular for UK roads,’ he said.

‘The stock trades on 2015 price/earnings ratio of 11.4 times which is too cheap given the earnings upside potential and good cash generation despite heavy investment currently.’

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Key stats
Market capitalisation£514m
No. of shares out268m
No. of shares floating238m
No. of common shareholdersnot stated
No. of employees1249
Trading volume (10 day avg.)1m
Turnover£171m
Profit before tax£1m
Earnings per share0.28p
Cashflow per share8.61p
Cash per share7.19p

*Correct as at 5 Aug 2014

Imagination Technologies upgraded after share price struggle

Micro-chip maker Imagination Technologies (IMG) has been upgraded by Liberum, which sees an ‘attractive risk-reward’.

Analyst Eoin Lambe upgraded the stock from ‘hold’ to ‘buy’ but retained a 250p target price following weakness in the share price caused by what was seen as over-reliance on Apple.

‘Imagination’s share price has been weak, declining by 28% since full year 2014 results in June.

We see an attractive risk-reward at his level,’ said Lambe. ‘We value Imagination’s current royalty stream at 164p (10% downside), assuming the business is shut. If on the other hand, management deliver on their three targets we believe the shares are worth £3.70 – more than 100% upside. Apple’s product refresh in H2 could be a positive catalyst.’

Shares rose 4.9% yesterday to 191.1p.

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