The Expert View: Standard Chartered, Kingfisher and EasyJet
Our daily roundup of the best analyst commentary on shares, also including GlaxoSmithKline and Mitchells & Butlers.
Standard Chartered still a ‘buy’ despite FT criticisms
Shore Capital is standing by its ‘buy’ recommendation for Standard Chartered (STAN), despite a series of Financial Times articles critical of the emerging markets-focused bank.
Criticisms of the bank featured in FT articles, including Wednesday’s front-page story ‘StanChart expansion grinds to a halt after profits plunge’, have referenced aggressive price-led expansion of the wholesale bank and concerns over capital adequacy. Senior executives have come under fire for basing themselves in London, away from the coalface, as has the decision to replace former finance director Richard Meddings with Andy Halford, who has no banking experience.
‘While these reports no doubt carry a good degree of truth and may appear unsettling to investors, we would note that the shares have already been very weak performers for some time (something that holders will not need reminding of) and currently trading 38% below their peak of £19.50 [at £12.12] that was reached in November 2010,’ said analyst Gary Greenwood.
He said trading could improve in the second half of the year, pointing to a stabilisation of transaction banking margins, the possibility that Korean impairments had passed their peak, and the strength of the bank’s balance sheet.
‘To our minds the concerns raised in the FT have already been more than priced in by the market.'
Is Kingfisher slump a blip or a new downside?
Kingfisher (KGF), owner of B&Q and Screwfix, weighed heavy on the market yesterday as it reported a disappointing slowdown in sales.
Jefferies analyst James Grzinic retained a ‘buy’ rating but reduced his target price from 450p to 385p after second quarter results failed to lift spirits following the ‘unhelpful shape’ of first quarter gross margins. Shares tumbled 8.2% to 308.5p yesterday on the news.
Since June there has been a ‘sharp deterioration in demand…in France and Poland’.
‘The impact on profit expectations is limited for now, but future uncertainty will weigh and progress on [the deal to buy French home improvement retailer] Mr Bricolage is only of limited comfort,’ he said.
At this stage Grzinic said it was ‘virtually impossible’ to determine if the poor results were ‘a blip or a new downside’.
‘It is easier to conclude that the market is now firmly betting that demand softness will not reverse anytime soon.’
EasyJet could hit turbulence in 2014 and 2015, says Liberum
Decent third quarter results were not enough to turn round the full-year fortunes of budget airline EasyJet (EZJ).
Liberum analyst Gerald Khoo retained a ‘hold’ rating and a target price of £16.50 as third quarter revenue was reported in line with consensus but below his own estimate.
‘EasyJet’s first full-year profit before tax guidance for September 2014 was a little disappointing (between £545 million and £570 million) relative to consensus and our top end forecast [of £595 million],’ he said. ‘We anticipate cuts to consensus estimates for 2014 and possibly 2015.’ Shares fell 3.8% to £13.50 yesterday on the news.
The stock currently trades on a September 2014 price-earnings ratio of 11.9 times enterprise value, a discount to competitor Ryanair of around 25%, which Khoo said seemed ‘difficult to justify long-term, but perhaps understandable in the short-term given the loss of positive momentum in revisions to EasyJet’s earnings estimates’.
Lack of divi earns Mitchells & Butlers a Numis downgrade
Further likely postponement of a dividend pay-out has led to a downgrade for pub and restaurant chain Mitchells & Butlers (MAB).
Numis analyst Douglas Jack downgraded his recommendation from ‘buy’ to ‘hold’ but retained a target price of 420p for the company, which owns The Great British Carvery, Thai Dragons and Fuzzy Ed’s brands among others. Jack was disappointed by third quarter sales and cut forecasts by 2%.
‘The company’s ongoing malaise leaves the ability to expand and reintroduce dividends in question,’ he said. ‘Management claims like-for-like trading has picked up over the last three weeks and that it is hopeful of stronger like-for-like sales in 2015, but there have been many false dawns.’
However, Jack did note the company had ‘one of the highest-quality estates in the sector’ and has ‘long-term potential’.
‘However, one has to question whether this potential will be realised,’ he said. ‘We downgrade…to reflect further likely postponement of the reintroduction of dividends.’
Shares are currently trading at 380p.
Barclays unsure about future growth at Glaxo
Poor second quarter results say GlaxoSmithKline (GSK) shares tumble earlier in the week and has raised fears about future growth.
Barclays analyst Mark Purcell retained an ‘equal weight’ stance and target price of £17.30 on the shares, which are trading at £14.70.
‘Disappointing second quarter results and resultant earnings downgrade leave significant doubt around future growth,’ he said. ‘While GSK management accepts that the current price and contracting pressure blighting its US respiratory franchise will persist for the foreseeable future and require two to three years transition to new product launches, it maintains it can deliver sustainable top-line growth in the medium to long-term.’
Purcell said he was ‘less sanguine’ and preferred Sanofi as ‘a recovery story’ in pharma and UCB as a ‘mid cap’/ growth pick.