The Expert View: Stobart, ABF and Xcite Energy
A roundup of some of the best analyst commentary on shares, including Home Retail Group and Tribal Group.
Stobart Group: short-term pain, long-term gain
Investors should expect Stobart Group (STOB.L) shares to take a beating after a disappointing trading update, according to Investec analyst John Lawson, but long term it's still a 'buy'.
Trading from September to January was mixed. Demand for aviation services was strong, but the chilled transport division continues to struggle, and it's now set to close. 'Overall, the board expects the group's operating performance for the year to be slightly below current market expectations,' the update noted.
Nonetheless, Lawson retains his 'buy' recommendation, saying the end-game of business disposals should see investors quids in. 'Stobart is a special situation and successful execution of the exit plan should see patient investors rewarded,' he added.
Shares in the group closed at 92.5p on Thursday, down 2.5p or 2.6%.
Pressure to resume on ABF shares, says Canaccord
‘The clothes are cheap, the shares are not,’ said Canaccord Genuity analysts of Associated British Foods (ABF.L) yesterday after the company reported strong 13% like-for-like sales growth for its Primark chain.
The Canaccord analysts kept their ‘hold’ rating on the shares, but raised their target price by 5p to 100p. Aside from Primark, all other ABF divisions performed in line with previous expectations.
‘We like ABF for its defensive characteristics and low-mid teens earnings growth supported by Primark expansion in continental Europe but the conglomerate nature of the business and the exposure to commodity processing warrants a discount to the Consumer Staples average ratings,’ the analysts said.
Shares in ABF leapt in response to its trading statement. But Canaccord said an ‘overextended valuation’ meant they expected shares to ‘come under pressure’ over the next month or so before the company’s 25 February trading statement. The announcement of any new Primark store openings could offset this, though they added.
Shares in the group closed at £16.12 on Thursday, up 56.3p or 3.6%.
This could be Xcite Energy's year, Merchant Securities says
Xcite Energy (XEL.L)'s ownership of the Bentley heavy oil field in the UK North Sea could mean big returns for investors, according to Merchant Securities analyst Brendan Long, and he's initiated coverage with a 'buy' recommendation.
The analyst estimates the field will produce 126 million barrels of oil, and he called it one of the best undeveloped assets in the UK North Sea.
However, to achieve first oil Xcite will need to spend about $131 million, Long estimates. And that's before contingencies and net of a reserve based lending facility. Thus far Xcite's relied on equity drawdown facilities and short-term notes, but it's now looking to farm out an interest in the field to another company.
'We believe that until Xcite has secured funding to advance the Bentley field to first oil it will trade at a discount to its fundamental value,' Long said. 'However, we believe a funding solution such as a farm-out would focus investor attention on the potential of one of the most attractive undeveloped fields in the UK North Sea.'
Shares in the group closed at 104p on Thursday, up 2.3p or 2.2%.
Seymour Pierce upgrades Home Retail Group
Profits at Argos and Homebase owner Home Retail Group (HOME.L) look set to exceed consensus estimates, prompting Seymour Pierce analyst Freddie George to upgrade the shares from 'sell' to 'hold'.
In the 18 weeks to 5 January like-for-like (LFL) sales at Argos were up 2.7% on a year ago, helped by strong sales of tablet computers and white goods. Sales at Homebase, meanwhile, fell 3.9%. The company now expects underlying 2013 pre-tax profits to be about £10 million above previous consensus estimates of £73 million.
George stressed that Argos remains a worry, and that its declining profits over the past five years may be due to inherent strains on the business model rather than merely a consequence of the UK's asthmatic economy.
But a positive outcome remains a possibility. 'However, in a more favourable economic environment, private equity might be tempted to make a bid for the company and run the business for cash,' he said, increasing his target price from 70p to 115p.
Shares in the group closed at 138.6p on Thursday, up 17p or 14%.
WH Ireland: Tribal Group remains a 'buy'
Even though the shares are up 64% since May, Tribal Group (TRB.L)'s still a 'buy', according to WH Ireland analyst Nick Spoliar.
Spoliar noted that full-year results nine months ago came in ahead of expectations, and expectations for 2013 are underpinned by positive trading momentum.
'Strong share price performance (+92% versus AIM AllShare) reflects increasing confidence in the now clearly focused business, contract success and increasing value propositions within the mix. We expect these factors to continue,' he said.
'Our 135p target price corresponds to a prospective price to earnings of 14x, still shy of a full Support Services sector rating and well below the ratings of comparable tech-heavy services stocks... which may serve as comparators. In terms of the numbers, we see further upwards potential in due course.'
Shares in the group closed at 123p on Thursday, up 1.3p or 1.1%.