The Expert View: Vodafone, Kingfisher and Weir
Our daily round-up of analyst recommendations and commentary, featuring Associated British Foods and Fenner.
Vodafone results will show the good, the bad and the ugly, Berenberg warns
Paul Marsch, analyst at Berenberg Bank, has reiterated his 'buy' recommendation on telecommunications giant Vodafone (VOD.L) ahead of Tuesday's first-half results, despite warning investors to expect a mixed set of figures.
First up, the good. US outfit Verizon Wireless, in which Vodafone has a 45% stake, has already reported what Marsch called 'stellar' numbers, with 12% earnings growth. By comparison, a weak performance in Europe has been well flagged, so it's unlikely that analysts will be really shocked by what they see.
Bad-wise, Marsch said if the trading update shows a decline back into an organic revenue decline then investors should brace themselves for a further deterioration in the rest of the year.
In terms of the ugly, Marsch cited his expectation of a 10.1% decline in first-half revenue. Stripping out the effects of currency movements would reduce this by 2.5% to 3.0%, he said, but 'it is not going to look pretty'.
Nonetheless, Marsch said the shares remain a 'buy'. 'We think that relative to the results of other European telcos, Vodafone’s numbers will look okay, at least in organic terms, and even better if we look at Vodafone’s proportionate numbers, including its share of Verizon Wireless’s 7.5% service revenue growth and 12% year-on-year earnings growth.'
Shares in the group closed at 167.75p on Wednesday, down 1.25p or 0.74%.
Seymour Pierce warns Kingfisher's business model needs refurbishment
Kate Calvert, analyst at Seymour Pierce, has downgraded her forecasts for DIY store owner Kingfisher (KGF.L), saying the group is ill-prepared for the shift towards internet retailing.
Calvert said Kingfisher, whose brands include B&Q and Screwfix, has done well to double French and UK earnings over the past five years, and also managed to sell its Italian operations at the peak of the market.
However, she said its format of big, warehouse-like shops isn't right for today's shoppers. 'Kingfisher has too much space for a multi-channel society. Its stores are too large, difficult to shop and not aligned to the new trend for convenience,' she said.
'The company faces cannibalisation from the development of the internet, erosion from the trend to DFM (Do-It-For-Me) and from the growing homewares sub-sector in the UK.'
Calvert's 2013 pre-tax profit forecast falls from £740 million to £710 million, which compares with a consensus estimate of £870 million at the beginning of the year. She retains a 'sell' recommendation.
Shares in the group, which feature in the Citywire Selection star pick Fidelity Special Situations fund, closed at 290.8p on Wednesday, down 0.9p or 0.31%.
JP Morgan cuts target price for Weir Group
Andrew Wilson, analyst at JP Morgan, has cut his target price for industrial pump maker Weir (WEIR.L), warning that weak orders in the minerals division will suppress the overall numbers in the year ahead.
Weir's third-quarter results revealed mixed results: although the group remains on track to deliver pre-tax profits of £440 million-£450 million, orders in the minerals division, which supplies mining and oil sands companies, were flat year-on-year.
'The downturn in order inflow for the minerals division has been more rapid than previously expected. Our estimates for 2012 are unchanged. However, we are reducing our sales and operating profit forecasts for the Minerals division for 2013,' Wilson said.
'We have reduced our group revenue forecast by 4% resulting in 2013 earnings per share of 140p, a 4% cut.' The analyst's target price falls from £18.95 to £18.31.
Shares in the group closed at £17.80 on Wednesday, down 44p or 2.41%.
Nomura says 'buy' Associated British Foods
David Hayes, analyst at Nomura, has reiterated his 'buy' recommendation on Associated British Foods (ABF.L) following a strong end-of-year trading update.
In the year ended 15 September group revenues rose 11% to £12.3 billion, and adjusted pre-tax profits stormed ahead 17% to £974 million.
The results reflect a strong showing from AB Sugar and cut-price clothing chain Primark, whose performances over the year the group's chief executive, George Weston, called 'exceptional'.
Hayes said momentum behind Primark remains impressive, with 12 new stores opened over the first quarter. He expects profits from this part of the business to rise 20% in 2013.
The analyst has a target price on the shares of £15.
Shares in the group closed at £13.72 on Wednesday, up 7p or 0.51%.
Canaccord cuts target price for Fenner on margin pressure
Michael O'Brien, analyst at Canaccord, has reduced his target price for conveyor belt maker Fenner (FENR.L) despite forecast-beating results because of margin pressures.
In the year ended 31 August revenues rose 16% to £830.6 million, and underlying pre-tax operating profits were up 30% to £103.9 million, ahead of O'Brien's forecast of £100 million.
'We retain our view that Fenner is a business which has undergone significant qualitative and balance sheet improvement. Engineered Conveyor Solutions (ECS) has increasing shifted into service, support and replacement, whilst Advanced Engineered Products (AEP) has continued to develop a number of attractive niches,' the analyst said.
However, he warned that margins in the ECS division are set to fall in the year ahead, and he also cited 'small pockets of destocking' in the AEP division. The analyst's target price falls from 549p to 471p, and he retains his 'buy' recommendation.
Shares in the group closed at 361.5p on Wednesday, up 11.5p or 3.29%.