The Expert View: St James’s Place, Morrisons and Home Retail
Our daily roundup of analysts' share recommendations and commentary, also including Bwin.party and Trinity Mirror.
St James’s Place in a ‘sweet spot’ as it prepares for FTSE 100
Wealth manager St James’s Place (STJ.L) is in a ‘multi-year sweet spot’ according to Barclays analyst Alan Devlin who maintained an ‘overweight’ recommendation on the stock.
Following a Barclays conference that hosted the company, Devlin, who placed a target price of 917p on the shares, said the company has ‘plenty of headroom to deliver continued assets under management (AUM), earnings and dividend growth over both the short term and medium term’.
He said in the short term it would benefit from strong recruitment last year and sales growth this year ‘as the new partners start to get productive’. Over the medium term it ‘remains confident’ of doubling AUM to £80 billion by 2018.
‘St James’s will be added to the FTSE 100 at the close of business on 21 March. While this is obviously positive given the resulting index buying, more importantly, it is also very positive from a reputational stand point, which is very important for a financial service distributor,’ said Devlin.
‘The confidence and comfort the FTSE 100 listing will give to potential clients St James’s is hard to measure, but our sense is that it will be a tailwind to sales growth.’
Bwin is so far down, is the only way up?
Online gambling company Bwin.party (BPTY.L) is still a ‘buy’ for Peel Hunt as it ‘reaches the nadir of its fortunes’.
Analyst Nick Batram maintained a ‘buy’ recommendation and a share price of 137p as he questioned whether this was the ‘last roll of the dice’ for the faltering company.
‘Full year numbers were as bad as expected but 2013 should represent the nadir in the group’s fortunes,’ he said.
Current trading shows 6% growth in Q4, down 10% year on year, and if ‘lower cost base and greater focus on regulated markets don’t deliver the expected improvement over the next six months it will put management in a difficult position’.
However, Batram said he still had some faith in the stock and said that a new management could be the answer to the company’s problems.
‘We continue to see Bwin.party as a trading stock with the added potential that if this management team don’t deliver a recovery others may well try.’
Morrisons reveals radical strategy overhaul
Struggling supermarket Wm Morrisons (MRW.L) has announced a major overhaul of its strategy that will see it dispose of a number of assets and more competitive pricing in its stores.
Jefferies analyst James Grzinic recommended a ‘buy’ and a 275p target price on the shares even though earnings before interest and taxes (EBIT) are due to fall by c.30% due to reinvestment in the supermarket chain.
He said although earnings will fall in 2014/15, they will ‘rebuild strongly as operating expenditure savings come through’ following £1 billion worth of disposals that will underpin £2 billion of free-cashflow generation over the next three years.
‘Repositioning aggressively on pricing follows an extended period of underperformance,’ said Grzinic. ‘The business recognises that its relative value positioning vs. purely price-driven competitors is detracting from the stores’ appeal, and will address this vigorously.’
Home Retail’s big brands fare well but face competition
Cantor analyst Freddie George has increased his target price for Home Retail (HOME.L), owner of Argos and Homebase, after a better-than-expected Q4 update.
George maintained a ‘hold’ recommendation but increased his target price from 205p to 215p.
He said the eight-week trading update to 1 March was better for both Argos and Homebase and the company flagged that pre-tax profits ‘are now forecast to come in at the top-end of the company’s current range of £107 million to £112 million’.
Within Argos sales increased 5.2% thanks to electrical sales and at Homebase sales increased 6.9% helped ‘by strong growth in ‘big ticket’ sales’.
George increased his full year 2014 pre-tax profit forecasts and increased earnings per share forecast from 9.4p to 9.8p.
However, he said he retained his ‘hold’ recommendation on the basis that private equity bidders will be less interested due to a stronger balance sheet and online electrical goods retailer AO.com, which recently floated, will ‘likely start to make ‘inroads’ into the Argos electrical categories’.
Trinity Mirror ponders dividend reinstatement
Improving trends in advertising have bolstered publisher Trinity Mirror (TNI.L) and there is even talk of a reinstatement of dividends.
Liberum analyst Lisa Hau reiterated her ‘buy’ recommendation and placed a target price of 260p on the shares following full year 2013 results.
She said the operating profits were in line with expectations and the outlook statement ‘is upbeat’ thanks to improving trends in advertising. For shareholders, the good news comes in a potential return of capital.
‘Management reaffirm that they have the financial flexibility to consider all options to create value for shareholders,’ she said. ‘They have made encouraging comments around the potential return of capital. We see the reinstatement of dividends as a catalyst for the stock. We anticipate this could occur during interims.’