The Expert View: Tullett Prebon, DCC and Telecity
Our daily roundup of the best analyst commentary on shares, also including LondonMetric and Anite.
Tullett Prebon hit by rumours of Terry Smith’s departure
Speculation that chief executive of wholesale financial broker Tullett Prebon (TLPR) Terry Smith is to step down is a further blow to an already struggling company.
Shore Capital analyst Gary Greenwood reiterated his ‘sell’ after the Financial Times reported Smith would step down before the end of the year, with former Lehman’s executive John Phizackerley the leading candidate to take his place.
‘Smith’s potential departure comes at a time when the company is suffering from significant revenue pressure owing to historically low levels of volatility and regulatory changes that are affecting their interdealer brokers and their clients,’ said Greenwood. ‘The newspaper understands that Smith wishes to spend more time pursuing his other business interests, notably Fundsmith, the asset management business that he recently founded.’
Greenwood said the departure would be ’viewed with some trepidation’ considering Smith’s standing in the investment community.
‘On balance, we view news of Smith’s potential departure as a negative for the investment case. We continue to harbour concerns around the future prospects of the voice broking industry in which Tullett operates as we view it as being in structural decline. While consolidation is a possibility, we do not see this as a good enough reason alone for investors to own the shares,’ he said.
DCC extends its reach with medical acquisition
Support services business DCC (DCC) has boosted its medical division with the acquisition of Williams Medical, a supplier of medical and pharmaceutical products, for £45 million.
Peel Hunt analyst Christopher Bamberry has retained a ‘buy’ rating and increased the target price of the stock from £33.65 to £35.10. Shares yesterday fell 20.7p, or 0.6%, to £35.72 on the news.
‘[DCC has acquired] Williams Medical, the market leader in the supply of medical and pharmaceutical products and related services to GPs in Britain, for an enterprise value of £45 million,’ said Bamberry. ‘The price paid equates to 7.5 times historical profits and 9.4 time price earnings [ratio]. March 2015 profit before tax is increased by 2% as a result.
‘Williams will extend DCC Vital’s market coverage from the hospital and retail pharmacy channels into the GP channel, giving it the most comprehensive sales and distribution network in Britain and Ireland.’
LondonMetric Reit is fully valued, says Liberum
Real estate investment trust (Reit) LondonMetric Property (LMP) is looking fully valued to Liberum analyst Jon Stewart.
Stewart retained a ‘hold’ recommendation and a target price of 133p on the shares, which fell 1.2p, or 0.8%, to 144.2p yesterday.
’16.8% total return from net asset value growth and dividends in 2014 is commendable, albeit leaning heavily on yield compression which accounted for around 60% of this return,’ he said. ‘With yields now at long-term averages, we expect yield compression to slow in the absence of a pick-up in rental growth. This is expected to be gradual, leaving the current valuation at 1.2 times March 2014 net asset value looking full in our view.
‘While there is support from a 4.8% dividend yield… we still see downside risk to earnings per share forecasts from disposals.’
Strong datacentre growth reiterates Telecity as a ‘buy’
New figures on the prospects for datacentres bode well for data management facilities provider Telecity Group (TCY).
Investec analyst Roger Phillips has reiterated his ‘buy’ recommendation and target price of 925p after a quarterly report from the CBRE showing a year-on-year rise of 90% in European demand for data centres in its first quarter, which follows on from a strong fourth quarter. Shares yesterday fell 7.5p, or 1%, to 737p.
‘Amsterdam and Frankfurt were the stars, while London turned in a mixed performance, with strong headline demand skewed by large deals,’ said Phillips. ‘Overall, the full year 2014 thesis of double-digit organic growth in Europe and mid-single digit in the UK driving around 10% growth overall looks well supported.’
He added that risks remained in ‘unforeseen additions to industry supply’.
Non-core division sell off sets Anite up for beneficial next move
Software provider Anite (AIE) has continued to sell off non-core businesses, allowing it to focus on faster paced and more beneficial areas.
Jefferies analyst Milan Radia retained a ‘buy’ rating and a target price of 110p on the stock. Shares yesterday rose a penny to 95.3p. The company, which specialises in providing software to the international wireless and leisure travel industries has sold its travel division to focus on its wireless arm, which provides mobiles devices and networking testing systems.
‘The sale of Anite’s travel division to LDC [for £45 million] was positively received by the market and rightly so,’ said Radia. ‘It completes the divestment of non-core businesses. We expect the proceeds to be deployed on acquisitions. Wireless testing is moving at a fast pace and the ability to bolt on innovative and adjacent technologies will be strategically very beneficial to Anite.’