The Expert View: Royal Mail, IG Group and Beazley
Our daily roundup of the best analyst commentary on shares, also including Premier Oil and UBM.
Espirito neutral on Royal Mail after weak first quarter
Espirito Santo Investment Bank has started coverage of Royal Mail Group (RMG) with a ‘neutral’ rating and ‘fair value’ share price target of 505p.
Analyst Alex Paterson said competition in parcel delivery had hit first quarter revenues. Improvements in UK letter volumes and revenue were offset by just 1% volume growth in parcels as the business struggled to compete with ‘severe price competition’.
‘The UK parcels market is extremely competitive and Royal Mail comments that other operators are pricing aggressively to full increasing capacity,’ said Paterson. ‘Royal Mail also comments that exports have been impacted by the strength of sterling and June trading was generally weak due to a slowdown in the retail sector.
‘Volumes are expected…to improve slightly as the comparisons become easier due to the delayed consumer response to changes in prices and sizes in 2013.’
The shares closed 11.3p or 2.4% down yesterday at 454.7p.
Liberum lukewarm as IG Group lifts payout
Shares in IG Group (IGG) jumped nearly 8% yesterday after the spread betting company posted better-than-expected full-year profits and said it would pay more of its earnings to shareholders.
Liberum analyst Cormac Leech was unconvinced, however, retaining a ‘hold’ and 650p target price on the shares.
‘Full-year profits before tax of £195 million was 1% better than expected however this was cost-driven, with revenues dipping towards the end of the last quarter,’ he said, adding that revenue downgrades ‘look likely’.
‘More positively the final dividend was better than expected at 28p (vs expected 24p) implying a full-year dividend yield of 4.9%. Management now target a 70% payout ratio going forward. This may raise concerns that management see little growth potential for the business in the near term. Look to sell in rallies,’ he said.
The shares closed 44.5p higher at 619.5p, close to the level at which they started the year.
Peel Hunt applauds ‘faultless’ Beazley
Specialist insurer Beazley (BEZG) has pleased Peel Hunt analyst Mark Williamson with a good set of half-year results and solid underwriting.
Williamson retained his ‘buy’ recommendation and 210p share price target price following a 61% rise in first half profits thanks to increased investment income and a fall in payouts for large catastrophe.
‘Consistency of underwriting return and above-average investment gearing translate to premium shareholder returns, and this has been seen in H1, with the group delivering a 17% return on net tangible assets,’ he said.
‘In recent years Beazley had struggled to achieve much more than a 1% investment return; following changes to the investment management contract with Falcon there are now signs of tangible improvement, and it is hard to fault the business on any front.’
The shares gained 11p, or 4.4%, to 260p.
Panmure downgrades UBM to ‘sell’ as future looks unclear
Panmure Gordon analyst Jonathan Helliwell downgraded United Business Media (UBM) from ‘buy’ to ‘sell’ and slashed his target price for shares in the media and communications company from 940p to 590p. Shares were trading at 644p yesterday.
He believes the firm’s new chief executive Tim Cobbold should take two courses of action: ‘cut the dividend and sell PRNewswire, leaving UBM as a high growth pure global events business’, using the money from the sale to invest in the events business.
While he notes this could hurt the stock in the near term, ‘we also argue that consensus estimates look c.11% too high reflecting FX pressures and near term constraints in events’.
‘A dividend cut would take away any yield support,’ he said. ‘A sale of PRNewswire could be significantly earnings per share-dilutive in the near term…and introduces significant execution risk both on the sale and reinvestment.’
Numis downgrades Premier Oil after disposals
Numis Securities has downgraded Premier Oil (PMO) for a second time following the negative impact of recent asset sales. Numis analyst Sanjeev Bahl cut his recommendation from ‘add’ to ‘hold’ after recently reducing it from ‘buy’ to ‘add’ but maintained a target price of 351p.
He noted the sale of asset disposals including ‘first gas’ supply to Indonesia, the sale of North Sea production and the Scott/Telford/Rochelle production fields.
‘Our more conservative valuation approach means that Premier trades closer to the peer group average at 0.93X net asset value,’ he said. ‘We recently downgraded our recommendation from ‘buy’ to ‘add’ after strong relative share price performance, this now moves to ‘hold’.’
The shares added 1.4p to 326.7p. They are up 4% this year.