The Expert View: Renishaw, Capita and Johnson Matthey
Our daily roundup of the best analyst commentary on shares, also including Provident Financial and Poundland.
Renishaw surprises again with bumper fourth quarter
Engineering company Renishaw (RSW) has proved its capacity to surprise with a ‘bumper’ fourth quarter.
Investec analyst Michael Blogg retained a ‘buy’ rating but placed the target price of £18.10 ‘under review’ as the fourth quarter figures pushed results ‘well ahead of expectations’. Shares jumped 22.5% to £18.01 yesterday on the news.
‘Renishaw retains a huge capacity to surprise and has done so on the upside,’ he said. ‘Full-year revenue exceeded our estimates by £13.5 million… and this dropped through to earnings,’ he said.
‘There was 8% underlying growth, excluding lumpy unpredictable orders in both years. This good news is likely to be reflected in the share price after a period of underperformance. Our estimates and target price are placed under review, but we are comfortable with a “buy” recommendation.’
He added that the precision instruments maker was positive on new products that would fulfil demand in certain niches.
Vanquis Bank helps Provident Financial to outperform
Growth at Vanquis Bank is benefiting parent company Provident Financial (PFG), helping the shares to outperform the market by a significant margin.
Panmure Gordon analyst Keith Baird retained a ‘hold’ rating but increased his target price from £17.00 to £20.00 for the shares, which were trading at £20.90 yesterday.
‘First half profits before tax of £94.1 million (+23%) was ahead of expected growth in Vanquis Bank,’ he said. ‘The outlook is for flattish home credit profits coupled with continued strong growth in Vanquis Bank. We will review our forecasts for full year 2014.’
Baird added that over one year the shares had outperformed the overall market by 27% and 5% over the last three months.
‘At current levels they are trading on 14.5 times full-year 2015 which compared with the five-year average of 12.1 times, reflecting the rerating on the back of the strong growth in Vanquis Bank,’ he said.
‘Assuming an 80% target payout the prospective yield is 4.9%. The excess yield over the market which has been an attraction of the shares is likely to fall if yields in general start to rise as is expected.
‘With good momentum on earnings in Vanquis we are likely to see profit upgrades for this year.’
Jefferies warns of Poundland ‘cannibalisation’
Jefferies has initiated coverage of Poundland (PLND) but is conservative about the prospects for the business following its own consumer survey.
Analyst Caroline Gulliver initiated coverage with an ‘underperform’ and a target price of 260p following a Jefferies poll of 3,000 consumers. Shares were trading at 320.9p yesterday.
It showed nine in 10 UK consumers have shopped in an average of three different value retailers over the past six months and 60% of people have shopped in one of Poundland’s 528 stores.
However, she takes a conservative view on sales growth and gross margin. ‘Our profits before tax forecasts are 6%-18% below consensus for full year 2015-2017,’ she said.
‘Successful multi-price retailers… have greater opportunity to deepen their national penetration,’ she said. ‘We believe Poundland will suffer from competition and cannibalisation.’
She added that while Poundland was undercutting supermarkets, it was not cheaper than other discounters and as incomes remain squeezed this would hit the company.
Johnson Matthey upgraded after ‘respectable’ first quarter
Chemicals specialist Johnson Matthey (JMAS) has been upgraded after ‘respectable’ first quarter results and expectations of a pick-up in sales.
Numis analyst Charles Pick upgraded the stock from ‘add’ to ‘buy’ and retained a target price of £36.42 on the shares, which were trading at £30.22 yesterday.
‘Respectable underlying sales and earnings before interest and tax progress allowing for headwind factors (foreign exchange and the revised Anglo Platinum contract terms),’ he said. ‘Guidance for a “broadly in line” profits before tax result this full-year has been held, although foreign exchange will now cost £5 million more.’
He added that orders in the chemical business were ‘expected to improve’ and there was ‘always a seasonal pick-up in sales ahead of summer plan shut-downs when replacement units are installed’.
Berenberg ‘very confident’ about Capita’s full year prospects
‘Solid organic growth’ has pushed outsourcing giant Capita’s (CPI) half -year results above expectations.
Berenberg analyst Simon Mezzanotte retained a ‘hold’ recommendation and target price of £11.60 on the shares.
‘The outlook for this year and the next is very confident and points to further strong growth,’ he said.
He noted revenues up 13% to £2 billion year-on-year and earnings before interest, tax and amortisation up 14.7% to £260 million.
‘This [earnings report] implies a margin of 12.6%, 0.10% above last year which considering the acceleration in growth – higher impact from start-up costs – is a very strong result,’ said Mezzanottee. ‘Consensus expectations were set for around flat to slightly below last year.’
He added that the outlook remained strong and ‘underpinned by a bid pipeline which has replenished to a record £5.7 billion’.
Shares jumped 4.8% to £12.10 yesterday on the news.