The Expert View: Sports Direct, Pace and Emis
Our daily roundup of the best analyst commentary on shares, also including Belvoir Lettings and Henry Boot.
Sports Direct bonus row hasn’t affected case for shares, says Jefferies
After a testing time between Sports Direct (SPD.L) and its institutional shareholders, Jefferies is still finding the case for the shares ‘compelling’.
Shareholders recently blocked a scheme that would have paid Sports Direct’s controversial founder Mike Ashley a £70 million shares bonus, which has led to the company now proposing a new scheme that would reward all staff.
Jefferies analyst James Grzinic retained a ‘buy’ recommendation and a target price of £10.00 despite the tensions. Yesterday shares dropped 7.5p, or 0.9%, to 789.5p.
‘Sports Direct’s interim management statement reassured on strong operating performance, but did not dispel the perception of a rift between some institutional shareholders and the group,’ he said. ‘The earnings outlook remains compelling, but a middle ground on the compensation for Mr Ashley needs to be found.
‘We believe institutional shareholders are conscious of Mr Ashley’s importance to Sports Direct but that a less ad hoc, more structured arrangement needs to be found. The interests of both parties should be aligned in finding a compromise and getting everyone back to business.’
The interim statement reported strong growth of 10.3% and 11.5% at sales and gross profit level respectively in the nine weeks to 30 March. The company is also set to benefit from the upcoming football World Cup.
Belvoir Lettings downgraded on poor results and acquisition risk
Letting agent Belvoir Lettings (BLV.L) has been downgraded after ‘disappointing’ full year 2013 results.
Cantor analyst Sue Munden downgraded the company from ‘buy’ to ‘hold’ and decreased the target price from 200p to 127p as she scaled down forecasts for the company. Yesterday shares fell 1.9p, or 1.5%, to 125.6p.
Although companies connected with property have been strong recently thanks to the buoyant housing market, Munden said new management at Belvoir introduced an element of risk.
‘The full-year 2013 results disappointment and the significant downward revisions we are making to expected profits as a consequence should be considered in light of the still robust prospects for growth,’ she said. ‘The group is operating in a fundamentally sound macro environment in which Belvoir, with its strong franchise network, reputable brand and healthy financial resources should be able to flourish.
‘The ability of the new management to execute with acquisitions and signing up new franchisees adds a degree of risk although we believe our forecasts reflect these.’
EMIS to reap rewards of NHS spending
IT provider for GP systems Emis Group (EMIS.L) is set up to benefit from the use of ‘big data’ in healthcare and favourable NHS structures.
Peel Hunt analyst Alexandra Jarvis retained a ‘buy’ recommendation and a target price of 780p on the shares, which were trading down 1.4% at 630p yesterday.
‘Emis is uniquely positioned in the UK healthcare IT market to leverage the trend towards inter-operability across multiple settings,’ she said, noting ‘favourable NHS structures’ and that Emis was aligned with ‘key mandates and funding flows’.
She added that ‘uses of big data in the healthcare market’ present ‘long-term opportunities to add revenue streams’.
‘We recommend a “buy” on a sector discount and attractive free cash flow and dividend yields of 6% and 3% respectively and we see good prospects for the company to build a strategic premium,’ said Jarvis.
Henry Boot downgraded to ‘add’ by Numis
Construction company Henry Boot (BHY.L) has been downgraded despite stronger than expected results for 2013.
Numis analyst Christen Hjorth made a slight downgrade in his rating from ‘buy’ to ‘add’ and set a target price of 254p. Yesterday shares were trading down 2.6p, or 1.2%, at 217.4p.
‘Henry Boot reported stronger than expected results from 2013, driven by the conclusion of land sales late in December. Despite completing these sales ahead of forecast, management remain comfortable with expectations for 2014 and we therefore leave numbers broadly unchanged at this stage,’ he said.
‘[We] suggest a target price of 254p, representing a 16% upside to the current share price, and therefore an indicating an “add” recommendation.’
However, the target should be increased to 285p, representing a 31% upside, if house price inflation reached 10%, he added.
Good results from Pace but it faces ‘over the top’ pressures
Set-top box developer Pace (PIC.L) has released interim figures in line with market expectations but Liberum says the shares are no longer ‘standout cheap’.
Analyst Eoin Lambe has retained a ‘hold’ recommendation and a target price of 420p on the shares, which were trading up 2.7% at 408p yesterday, after the company published its interim management statement.
While revenue is down year on year for the first quarter of 2014 the gross margin has increased as operational expenses have been reduced. Aurora, a pay TV developer, has been full integrated quicker than expected after the Pace acquisition in January.
Despite this good news, Lambe still has reservations about the impact of ‘over the top’ services where TV and video is provided over the internet rather than through a television and set-top box network.
‘Aurora has been integrated and is trading ahead of expectations,’ said Lambe. ‘Management has done an impressive job cutting the cost base. However, going forward we believe that structural pressures are building for Pace and it is no longer standout cheap.’