The Expert View: Shell, St James’s Place and Next
Our daily roundup of the best analyst commentary on shares, also including Unite and Redefine International.
Shell has a strong first quarter but don’t get too excited
A good start to the year for Royal Dutch Shell (RDSb.L) should not be ‘over-extrapolated’, says Investec.
Analyst Neill Morton retained a ‘buy’ recommendation on the shares and put the target price under review. The shares were up 89p, or 3.6%, at £25.20 yesterday.
He was impressed by a stronger-than-expected first quarter aided by a cold winter in the US and the acquisition of Repsol’s liquefied natural gas portfolio at the beginning of the year.
‘On broadly flat oil prices, Shell’s net income jumped from $2.9 billion (£1.7 billion) in Q4 2013 to $7.3 billion in Q1 2014, beating consensus by over $2 billion,’ said Morton. ‘The cold US winter and global liquefied natural gas trading were key (but unquantified) drivers and the addition of Repsol’s liquefied natural gas assets was timely. We note that Q1 is usually a strong quarter for Shell – including seasonally lower costs. Current full year consensus is $22 billion so, while this is a good start, we would caution against ‘over-extrapolation’.
SJP best placed to deal with Budget upheaval
As wealth manager St James’s Place (SJP.L) recorded its best ever quarter, Barclays predicts it had further to go as it benefits from Budget changes.
Analyst Alan Devlin retained an ‘overweight’ rating and increased the target price from 917p to 923p. Yesterday the shares were trading down 6.6p, or 0.9%, at 772p.
The company reported net inflows of £1.2 billion in the last quarter, its best ever, against a consensus of £1.1 billion.
‘It is benefitting from strong retail sentiment towards equities, a rapidly increasing adviser base and a sustained withdrawal from the advice space from both the banks and IFAs,’ said Devlin. ‘Furthermore… SJP is the best placed company in our coverage to deal with the changes announced in the Budget, as it loses virtually nothing in lost annuity sales and should benefit from faster asset gathering and retention.’
Devlin predicted SJP would double its assets under management in five years.
Rent rises and future plans leads Jefferies to reiterate Unite ‘buy’
Student accommodation developer Unite (UTG.L) has delivered another ‘confident statement’ as rents rise and it continues to search for new regional sites.
Jefferies analyst Robert Duncan reiterated a ‘buy’ rating and a target price of 501p on the shares, which were trading down 4.2p, or 1%, at 422.5p yesterday.
The first quarter interim management statement reported room reservations were running at 73%, ahead of last year’s 71%, and ‘there is upward pressure on rents as student numbers continue to rise’.
‘Having raised £100 million of equity in the period, Unite is now seeking new regional sites as well as progressing its existing schemes, and has committed to invest £40 million into the brand,’ said Duncan.
Unite said in is first quarter statement that conditions for development were ‘supportive, particularly in the regions’ and that it planned ‘to grow our portfolio through highly selective, highly accretive development activity’.
Next shareholders in line for more special dividends, predicts Cantor
High-street retailer Next (NXT.L) had a better-than-expected first quarter and is predicted to continue paying special dividends.
Cantor analyst Freddie George reiterated a ‘buy’ recommendation and a target price of £72.00 on the shares – which were trading up 35p, or 0.5% at £65.20 yesterday – while he revised full year 2015 pre-tax profit forecast from £760 million to £780 million and earnings per share up from 369p to 379p.
George said he was reiterating his ‘buy’ recommendations for three reasons; earnings per share growth of 17.7% a year in the past five years; the value of the Next Directory not being fully priced in; and an opportunity for the group to use its cash flows to buy back shares and pay special dividends.
‘These [first two] drivers coupled with the opportunity for the group to use its cash flows to buy back shares and pay special dividends will continue to lead to improvements in return on invested capital and shareholder returns,’ said George. ‘The stock, which has broadly consolidated around current levels since the beginning of January is trading 17.7 times our revised forecast full year 2015 earnings valuing it at a similar level to the sector.’
Redefine reduced to ‘hold’ but income seekers should still ‘buy’
Redefine International (RDFI.L) has been downgraded after the shares shot up 20% since its FTSE 250 inclusion.
The success of the share price has prompted Peel Hunt analyst Kate Renn to downgrade the stock from ‘buy’ to ‘hold’ but retain a target price of 55p after the company benefitted not only from a £55 million placing on the FTSE but a successful conversion to real estate investment trust (Reit) status. Yesterday the shares were trading down 1.3p, or 2.2%, at 55.5p.
‘The [half year] interims highlight recent successes from the Reit conversion, management internalisation, FTSE inclusion, £55 million placing, £29 million of disposals sold 24% above book and the recruitment of Adrian Horsburgh – ex-Jones Lang with 30 years’ experience – as property director,’ said Renn.
‘We reduce to “hold” as our 55p target price has been exceeded following a 20% share price rise since the placing – although for income seekers, “buy” Redefine for its improving 5.4% dividend yield.’