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The Expert View: RBS, Crest Nicholson and ARM

A roundup of analyst recommendations and comments, also including F&C and Johnston Press.

Our daily round-up of analyst recommendations and commentary, featuring RBS, F&C, Crest Nicholson, ARM Holdings and Johnston Press.

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Key stats
Market capitalisation£56,197m
No. of shares out16,403m
No. of shares floating7,261m
No. of common shareholdersnot stated
No. of employees120300
Trading volume (10 day avg.)12m
Profit before tax£-5,820m
Earnings per share-52.52p
Cashflow per share-35.77p
Cash per share709.78p

*Correct as at 28 Jan 2014

Investec upgrades RBS despite £8 billion loss

Investec has upgraded Royal Bank of Scotland (RBS.L) to a ‘hold’ but warned the recovery of the taxpayer-owned bank will remain ‘painfully slow’.

Following news that RBS is set to make a £8 billion loss for the 2013 financial year, analyst Ian Gordon placed a target price of 345p on the shares.

‘It remains our view that RBS’ recovery in profitability will remain painfully slow,’ said Gordon. ‘Indeed, we expect that it will not achieve return on equity greater than cost of equity before 2018.

‘However, by then we believe that RBS will have morphed into (primarily) a low-risk, low-cost UK retail/commercial bank. We do not expect to see RBS increasingly represented in the strong recovery now underway in the UK mortgage market, but the overall transition process remains very slow and expensive to deliver.’

Shares recovered from Monday’s losses on Tuesday, to trade up 3.4%, or 11.5p, at 343p by mid-afternoon.

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Key stats
Market capitalisation£717m
No. of shares out581m
No. of shares floating555m
No. of common shareholdersnot stated
No. of employees649
Trading volume (10 day avg.)4m
Profit before tax£0m
Earnings per share-0.06p
Cashflow per share9.17p
Cash per share53.89p

*Correct as at 28 Jan 2014

F&C takeover is a good deal for shareholders

News that F&C Asset Management (FCAM.L) had accepted an offer from Canadian BMO Global Asset Management pleased shareholders, while analysts think the deal is good value.

Shore Capital analyst Owen Jones said the 120p offer from the subsidiary of the Bank of Montreal was ‘broadly in line with the sector…and therefore represents good value for shareholders’.

‘In terms of opportunities to stay within the retail asset management sector, we would recommend a switch into Jupiter which is a UK retail focused asset manager with an excellent platform franchise, with an expanding distribution network in Europe,’ he said.

At the time of writing the F&C shares were up 5.5%, or 6.8p, at 123p.

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Key stats
Market capitalisation£903m
No. of shares out251m
No. of shares floating237m
No. of common shareholdersnot stated
No. of employees556
Trading volume (10 day avg.)0m
Profit before tax£64m
Earnings per share28.49p
Cashflow per share29.02p
Cash per share66.92p

*Correct as at 28 Jan 2014

Crest Nicholson is now an income stock, says Peel Hunt

Housebuilder Crest Nicholson (CRST.L) is ‘officially an income stock’ after paying out an above consensus dividend, according to analysts at Peel Hunt.

Analyst Clyde Lewis retained his ‘hold’ recommendation and placed a target price of 360p on the shares.

Crest’s final year figures result beat expectations with profit before tax of £86.8 million on the back of a property boom. Housing sales at mid-January were 51% ahead of last year and ‘the outlook remains positive as consumer sentiment and credit availability has improved’. However, Lewis warned that there could be constraints in the supply-side of the business as demand continues to outstrip supply, the shelf-life of mortgages sees deal run out, and snags in the planning process.

The results are a turnaround for the company, which was forced off of the FTSE after becoming a casualty of the financial crisis.

‘Following the group’s return to the market in February 2013 and a strong balance sheet – the group has declared a dividend of 6.5p, 1.5p above consensus,’ said Lewis.

At the time of writing shares were up 1.6%, or 5.65p, at 357p.

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Key stats
Market capitalisation£13,317m
No. of shares out1,400m
No. of shares floating1,391m
No. of common shareholdersnot stated
No. of employees2461
Trading volume (10 day avg.)4m
Profit before tax£161m
Earnings per share11.51p
Cashflow per share12.76p
Cash per share27.98p

*Correct as at 28 Jan 2014

ARM hit by sliding Apple iPhone sales

Liberum has reiterated its ‘sell’ recommendation for ARM Holdings, which supplies microchips for smartphones, after Apple posted weaker than expected results.

Analyst Janardan Menon set a target price of 725p on the shares after Apple reported iPhone shipments that were ‘weaker than expected in its December quarter and weaker than expected revenue guidance for its FYQ2 ending in March’.

Apple’s problems combined with Samsung’s weak Q4 smartphone sales ‘highlight the on-going slowdown in the smartphone market, particularly at the high end’, said Menon.

‘Smartphones count for the majority of ARM’s royalty revenue and the slower sales in this segment is expected to reduce ARM’s royalties below current market expectations,’ he said. ‘We regard the stock as being over-valued and reiterate our sell recommendation.’

At the time of writing shares were down 0.94%, or 9p, at 948p.

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Key stats
Market capitalisation£152m
No. of shares out684m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees4797
Trading volume (10 day avg.)1m
Profit before tax£5m
Earnings per share0.87p
Cashflow per share5.66p
Cash per share5.13p

*Correct as at 28 Jan 2014

‘Still material upside’ for Johnston Press

Panmure Gordon has increased its target price for Johnston Press (JPR.L), publisher of The Scotsman, as it believes ‘there is still material upside’ despite a strong share price performance.

Analyst Alex DeGroote retained a ‘buy’ recommendation but increased the target price from 25p to 30p. The company, which is Panmure’s small cap media top pick, is deleveraging its debt, has ‘relative profit stability’ and strong management. It is also benefitting from a ‘fast emerging digital story’ and has completed successful refinancing.

‘For some months now the stockmarket has been aware of the refinancing underway at Johnston including the recent covenant reset,’ said DeGroote. ‘The fundamental objective of the re-fi is to rebalance the capital restructure, and provide management with the headroom to focus on the operations. However, it is important to be aware of the scope for adding value through reducing debt ratios.’

At the time of writing shares were down 0.49%, or 0.33p at 22p.

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