The Expert View: Meggitt, Intertek and Imagination Technologies
Our daily roundup of the best analyst commentary on shares, also including Hill & Smith and Latchways.
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.’
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.
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.
‘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.’
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.