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The Expert View: Sports Direct, Balfour Beatty and Dairy Crest

Our daily roundup of the best analyst commentary on shares, also including Restaurant Group and Advanced Medical Solutions.

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Key stats
Market capitalisation£4,596m
No. of shares out598m
No. of shares floating241m
No. of common shareholdersnot stated
No. of employees14076
Trading volume (10 day avg.)2m
Profit before tax£152m
Earnings per share24.42p
Cashflow per share32.90p
Cash per share24.63p

*Correct as at 3 Jul 2014

Sports Direct International emerges from bonus spat

Discount sports retailer Sports Direct International (SPD) should be able to press ahead as a long-running battle with shareholders over bonus payments appears to have been resolved.

Jefferies analyst James Grzinic retained a ‘buy’ rating and a target price of 727.5p on the shares following an extraordinary general meeting where shareholders voted in favour of the 2015 bonus share scheme. Shares jumped 5.6% to 769p yesterday.

Grzinic said the vote ‘should allow for Sports Direct and its institutional shareholders to now move back to the common ground of operation performance’.

‘Moving back to the real business we expect the upcoming finals to detail strong top line growth… healthy underlying earnings progress of 16%, an earnings per share increase of 21% and closing net debt of around £100 million,’ he said.

‘On a more qualitative basis we expect the group to confirm the main levers behind such lofty ambitions: online sales continue to grow strongly… UK retail margin expansion remains healthy,’ he said.

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Key stats
Market capitalisation£662m
No. of shares out137m
No. of shares floating135m
No. of common shareholdersnot stated
No. of employees6183
Trading volume (10 day avg.)0m
Profit before tax£-39m
Earnings per share-29.13p
Cashflow per share3.30p
Cash per share59.54p

*Correct as at 3 Jul 2014

Dairy Crest partnership increases global options

Dairy Crest (DCG) has announced a link-up with the world’s leading exporter Fonterra to make and sell baby formula.

The five-year deal will be positive for Dairy Crest’s global position, according to Peel Hunt analyst Charles Hall, who retained a ‘buy’ rating on the stock and a target price of 550p on the shares, which jumped 2.2% to 480.2p yesterday on the news.

‘Dairy Crest has announced that Fonterra is its partner for the whey project. This looks an ideal choice, given Fonterra’s leading position in the global diary market, and in particular its position in the Chinese infant formula market,’ he said.

‘The company has also announced a £20 million investment in GOS – a probiotic used in infant formula to replicate a mother’s milk. This will further extend Dairy Crest’s position in a global growth market as well as increasing added value in the business.’

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Key stats
Market capitalisation£1,242m
No. of shares out201m
No. of shares floating196m
No. of common shareholdersnot stated
No. of employees12295
Trading volume (10 day avg.)0m
Profit before tax£56m
Earnings per share27.98p
Cashflow per share44.34p
Cash per share3.64p

*Correct as at 3 Jul 2014

Restaurant Group upgraded on share price weakness

The Restaurant Group (RTN), which owns Garfunkels and Chiquitos among others, has been upgraded on expectations it will benefit from a recovering economy.

Numis analyst Douglas Jack upgraded the stock from ‘add’ to ‘buy’ but retained a target price of 725p on the shares, which were trading at 615p at yesterday's close.

‘The Restaurant Group should be one of the sector’s main beneficiaries from an improving economy,’ he said. ‘We believe there is upside to our forecasts, which already anticipate [earnings] growth, debt reduction and dividends growing equity value by an estimated 14% per annum. Due to recent weakness, we upgrade our recommendation to ‘buy’.’

Jack added that the current share price, which has fallen in recent weeks, ‘does not fully reflect the value of its three-to-four year site pipeline’.

‘This is arguably considerable given that the average opening has historically created £1.7 million of value,’ he said.

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Key stats
Market capitalisation£230m
No. of shares out208m
No. of shares floating191m
No. of common shareholdersnot stated
No. of employees453
Trading volume (10 day avg.)0m
Profit before tax£11m
Earnings per share5.45p
Cashflow per share6.64p
Cash per share2.54p

*Correct as at 3 Jul 2014

Potential for upside with Advanced Medical Solutions

Advanced Medical Solutions (AMSU) may have underperformed the FTSE All-Share but Investec believes there is potential for upside.

Analyst Cora McCallun retained her ‘add’ rating and target price of 129p on the shares after the company published a brief trading statement prior to results for the first half of its financial year. Shares were trading at 110.1p at yesterday's close.

‘The company confirms that the business is on track to meet current market expectations for both full-year 2014 revenue and profitability,’ she said. ‘Only the bulk materials division performed below expectations, but this has been compensated by stronger growth elsewhere.

‘Given the recent share price movement, underperforming the FTSE All Share by around 10% over the second quarter, we believe the stock offers material upside with potential for upgrades.’

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Key stats
Market capitalisation£1,530m
No. of shares out689m
No. of shares floating686m
No. of common shareholdersnot stated
No. of employees41221
Trading volume (10 day avg.)2m
Profit before tax£17m
Earnings per share2.48p
Cashflow per share14.58p
Cash per share87.66p

*Correct as at 3 Jul 2014

Balfour Beatty has short-term problems but is a long-term buy

Problems in Balfour Beatty’s (BALF) mechanical and electrical division has hit profits but the construction company is still a long term buy, according to Liberum.

Analyst William Shirley retained a ‘buy’ rating and a target price of 280p on the shares.

In a trading statement yesterday the company reiterated overall profits before tax would be in the £145 to £160 million range but announced it had taken a £30 million hit on the cost of disposing of private finance initiatives and another £35 million loss from its mechanical and engineering business. Shares fell 4.5% to 222.5p yesterday on the news.

‘While the pace of ongoing mechanical and engineering decline is a concern the market should take some comfort from the fact that the remaining 90% of the business is on track and should not lose sight of the substantial recovery potential,’ said Shirley.

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