The Expert View: SIG, Ashtead, Brammer, Keller and Intertek
Our daily roundup of the best analyst commentary on shares, also including Keller and Brammer.
SIG sell-off signal for Numis upgrade
SIG (SHI) has had a good year so far despite the sell-off in the construction materials sector, prompting Howard Seymour, analyst at Numis, to upgrade the insulation supplier from ‘hold’ to ‘buy’.
Seymour has not changed his target price of 230p for the shares, but said recent share price weakness – SIG has dropped nearly 19% over the last six weeks – had prompted the upgrade.
‘The shares look too cheap, notably on 2015 estimates which will be underpinned by strategic initiatives where management point to making “good progress”,’ he said.
‘Like many in the sector, like-for-like sales are significantly ahead of last year due to bad weather in 2013 and good weather in 2014 to date,’ he added.
‘We expect comparators to get more difficult through the second quarter and the second half of the year, but in the UK the merchanting sector should progressively benefit from genuine market recovery on the back of rising levels of macro activity which means we will remain in positive like-for like territory.’
However, Seymour added that SIG was not his top pick in the sector. ‘We continue to favour more UK-exposed stocks with similar self-help profiles which have also been hit, notably Grafton and Howden.
Ashtead backed to make it big in US
Liberum analyst David Brockton is standing by his recommendation to ‘buy’ Ashtead (AHT) after a torrid time for the equipment rental company’s shares.
Ashtead shares are down around 18% from their April peak due, Brockton says, to ‘rotation out of outperformers and caution over the impact of sterling strength’.
However, Brockton believes those concerns have been overstated. ‘Sterling has only strengthened by 1% since we last updated our estimates in March,’ he said.
‘Industry peer updates have become increasingly positive suggesting US construction recovery is gathering pace. Should trading momentum persist upgrades are still possible.’
He said Ashtead could potentially make solid inroads in the US in what is a fragmented sector. ‘Ashtead has a 6% market share but is the number two market provider in the US (behind United Rentals with 12%). There are over 5,000 suppliers who control 70% of the market. Ashtead is taking share as it acquires and opens new depots (around 50 per year from a base of 400 with a target of 700). Ashtead’s purchasing power provides a significant cost advantage,’ he said.
Brockton retained his ‘buy’ recommendation and a target price of £10.30.
Brammer urged to ‘splash the cash’
Peel Hunt analyst Dominic Convey has upgraded Brammer (BRAM) from ‘hold’ to ‘buy’ saying it is time for the industrial parts supplier to ‘splash the cash’ after a recent share placing.
Brammer last month launched a £54 million cash call, leaving the company with a weighty war chest for acquisitions.
‘There is a strong pipeline of acquisition targets which will accelerate the geographical expansion and/or its product range extension strategies, while realising substantial synergies,’ he said.
‘In anticipation of mergers and acquisition activity over the next 12 months, we increase our target price to 560p from 500p and move our recommendation to “buy” from “hold”.’
However, a number of other analysts have downgraded the stock in recent weeks, and Citywire AA-rated fund manager Nigel Thomas recently trimmed his stake in the firm.
No ‘bumps in the road’ for Keller
Ground engineering company has seen its shares floored after issuing its 2013 results, but after releasing a trading statement on Friday, Jefferies analyst Anthony Codling claimed investors’ fears had failed to materialise.
Keller (KLR) shares have fallen 20% since March, but Codling said the future looked bright for the company. ‘Nothing in the statement suggests to us that there are significant bumps in the road ahead for Keller,’ he said.
‘With a global reach and active in many, many discrete markets, overriding macro trends do not always apply to Keller at this point in the cycle, in our view.
‘Some say that the US housing market is slowing, but not in the markets served by Suncoast [Keller’s US building materials company]. Outside of residential, we estimate that the group’s non-residential private work grew by 10% during the first quarter.’
Codling has retained his ‘buy’ recommendation for the shares and a target price of £14.00.
Cantor cautions over stagnant Intertek
Business supplier Intertek’s disappointing trading statement last week has prompted Cantor Fitzgerald analyst Caroline de La Soujeole to express caution over the shares, and maintain her ‘hold’ recommendation.
Intertek (ITRK) last week announced organic growth of just 0.3% for the first four months of the year, compared to 7% this time last year.
‘On an organic basis, the last time trading was this weak was four years ago,’ said de La Soujeole. ‘We believe that a cautious stance on the stock is warranted given the still subdued trading conditions.’
De La Soujeole has cut her earnings forecasts and organic growth assumptions for the company, but kept a £30.65 target price.