The Expert View: Rolls Royce, GlaxoSmithKline, RSA Insurance
A round-up of analysts’ commentary on shares, also including Synergy Health and Aggreko.
Power provider Aggreko (AGGK.L) remains a ‘buy’ after a full year update that revealed a better end to the year, with more contracts signed and a reduction in bad debt.
Analyst Paul Jones of Panmure Gordon placed a target price of £17.36 on the shares after expectations that profits before tax will hit £335 million.
Jones said the positive outlook for the company was boosted by a ‘number of smaller contracts signed and extended, and a reduction in bad debt provisions after payments received’.
‘Smaller and slightly different contracts such as Panama show Aggreko continues to break new markets with nimble deals, though the ‘splash’ contract many want to see may be some way off,’ said Jones. ‘Nevertheless, Aggreko remains well placed and we remain buyers.’
Shares closed up 8.5%, or 128p, at £16.44.
Changes in the dollar and sterling exchange rate has seen Rolls Royce (RR.L) underperform its peers but a better performance in other operations has led Espirito Santo Investment Bank to upgrade the shares to ‘neutral’.
Analysts led by Edward Stacey placed a target price of £11.00 on the shares, up from 950p, as ‘some of our operational worries have actually not materialised’.
The shares have increased 1.6% in the past six months, underperforming global peers Safran and United Tech as a rise in the GBP/USD exchange rate hit Rolls’ earnings.
‘The relative underperformance of Rolls more than reflects this [change in exchange rates],’ said Stacey.
‘The new fair value of £11.00 is 9% downside to the current share price, which corresponds to a Neutral in our rating system.’
Shares closed up 33p, or 2.7%, at £12.36.
Pharmaceutical giant GlaxoSmithKline (GSK.L) signified its commitment to emerging markets by increasing its stake in its Indian subsidiary.
Analysts at Shore Capital retained their ‘buy’ rating on the company and set a target price of £15.82.
GSK will increase its stake in its Indian subsidiary from 50.7% to 75%, which analyst Brian White said signified ‘its commitment to this aspect of its emerging markets business and the potential of the fast growing Indian pharmaceuticals market’.
The £692 million cost of the increased stake will be funded by existing cash resources and the transaction will be ‘earnings neutral’ in the first year (2014).
Shares closed up 18.5p, or 1.1%, at £15.89.
Six contract wins for healthcare resources provider Synergy Health (SYR.L) means ‘more upside’ from the US markets, according to Investec. Analyst Nicholas Keher said the contract wins, worth £230 million, will ‘be taken well by investors and should lead to the share price gaining momentum as the market rewards this structural growth story’.
Keher placed a target price of £11.65 on the shares. Although the benefits from the contracts are unlikely to be seen until 2015, he thinks they will lead to more business in the US.
‘Whilst significant in size, we see these contract wins as only the first of many Synergy has the opportunity to win in the relatively undeveloped US market, which we have previously estimated at potentially £2 billion,’ said Keher.
‘We think Synergy is one of the best structural growth plays in our sector and expect the share price to start to gain momentum as investors come to appreciate the inherent value of the US market which Synergy is now beginning to unlock.’
Shares closed up 77p, or 7.45%, at £11.10.
Insurer RSA (RSA.L) has been downgraded to a sell following a £155 million loss in Ireland and the UK, the resignation of its chief executive and fears for 2013 profits which led the shares to dive.
Analyst Ben Cohen at Canaccord Genuity downgraded RSA and placed a target price of 85p on the shares as he believes the company will have to take drastic measures to build up its capital.
‘We think RSA needs to improve its solvency positions by up to £1 billion, to take its capital strength back to the levels in 2008/09, when solvency was simply not an issue,’ he said. ‘We see this being achieved by a combination of a lower dividend (a cut by a third), new reinsurance covers (to reduce volatility of earnings…and capital consumption of the back-book) and portfolio adjustment/disposals…A rights issue is also a possibility, albeit only likely a necessity if other reserving issues arise in coming months.’
Cohen also said he believes shareholder pressure will force RSA to reveal details of its plans to increase solvency earlier than February as it announced.
Shares took further losses, falling 2.4p, or 2.5%, to 90p.