The Expert View: Tesco, Tate & Lyle and Man Group
Our daily roundup of the best analyst commentary on shares, also including PayPoint and Future.
Tesco faces weakest performance in years
Barclays is predicting a first quarter trading statement for Tesco (TSCO), due next Wednesday, will show some of the weakest UK sales the supermarket giant has reported in years.
Analyst James Anstead reiterated an ‘equal weight’ rating and a target price of 340p. Shares yesterday rose by 3.7p, or 1.2%, to 305p.
‘As usual, the market’s main focus [for the trading statement] will likely be on the core UK business, which still represents around two-thirds of sales and profits,’ he said. ‘Our forecast is for UK like-for-like sales to fall by around 4.1%, representing its weakest performance for many years and a deterioration versus the -2.9% seen in the fourth quarter.’
However, Anstead debated ‘whether like-for-like is the best yardstick by which to judge Tesco in the short term, given numerous distortions’.
‘Despite the existence of some valid reasons for Tesco’s like-for-like weakness, the market will likely want to see hard evidence of Tesco’s turnaround gaining traction before buying into the story with conviction,’ he said.
Undervalued PayPoint offering ‘appealing’ divi
Bill payment system provider PayPoint (PAY) may have seen its UK business remain flat but it is growing substantially in other parts of Europe and offering an ‘appealing dividend’.
Jefferies analyst Will Kirkness reiterated his ‘buy’ rating and increased the target price from £10.20 to £12.60, noting full year 2014 earnings per share were 4% ahead of expectations due to lower tax. Shares yesterday inched up by 5p, or 0.5%, to £10.55.
‘Bill and general transactions in the UK were flat in Romania [there] was +54% growth, while UK estate growth and retail services have increased yield,’ he said.
He said the company was trading on a 18.4x full year 2015 earnings per share valuations which was ‘relatively conservative’ considering its range over the past 10 years.
‘The dividend yield at 4% is appealing,’ he said, adding downside risks included a loss of contracts.
Looking to the Future, and it’s uncertain
Peel Hunt has placed publisher Future (FUTR) under review after operating losses escalated to £2.3 million.
Analyst Malcolm Morgan put his rating ‘under review’ for the publisher of technology, sport and entertainment magazines and websites, and also the target price, which was at 11p. Shares were yesterday up 0.5p, or 6.7%, at 8.75p.
He noted operating losses increased from £400,000 to £2.3 million and that the outlook for 2015 was unclear as the company restructures.
‘The share of the UK profit is far from clear for the current year. However in 2015 – post the restructuring - we look for sales to be around £60 to £65 million,’ he said. ‘Profitability logically should rise given the scale of the staff reduction and the material reduction in debt forecast.’
Sucralose pricing and growth uncertainty hit Tate & Lyle
The falling price of sucralose caused by greater competition continues to hit Tate & Lyle (TATE), and more downward pressure is expected.
Shore Capital analyst Darren Shirley retained a ‘hold’ rating on the stock, adding that he was holding at a price of 676p. Shares yesterday jumped 27p, or 4%, to 701.5p.
He lowered 2015 forecasts, which had already had a sharp decline in sucralose – which makes up Tate & Lyle’s Splenda sweetener – factored in.
Shirley also had concerns about growth of the company.
‘While we recognise the considerable heavy lifting that has taken place in upgrading Tate & Lyle’s infrastructure, capability and culture in recent years, we have yet to see such work transfer into more sustained and importantly visible profit growth,’ he said. ‘Indeed, we have more recently been downgrading forecasts… we retain our “hold” recommendation.’
Man Group acquisition could be turning point for the company
News that hedge fund manager Man Group (EMG) is in talks to acquire a US fund manager has boosted confidence in the group.
Panmure Gordon analyst Keith Baird retained a ‘buy’ recommendation at a target price of 100p. Shares jumped 4.8p, or 5%, to 99.5p yesterday on news of the approach.
‘Following a press leak Man Group has confirmed it is in talks to acquire Numeric Holding, a Boston-based fund manager with $14 billion of asset under management… if the revenue yield was 1% and it made 30% operating margin this would represent £40 million of profit enhancement,’ said Baird.
He added that the acquisition, which would be paid for in cash, could add 20% to the earning potential of the group.
‘[Man Group] acquiring its way out of a tight corner is the right thing to do,’ he said. ‘This could mark the turning point.’