The Expert View: WH Smith, BAE Systems and Go-Ahead
Our daily roundup of analysts' share recommendations and commentary, also featuring CVS Group and Hummingbird Resources.
WH Smith a ‘cheap way’ to benefit from travel recovery
Barclays analyst Richard Taylor has flagged WH Smith (SMWH.L) as a cheap way to profit from growth in international travel thanks to its dominance in airports.
Taylor retained an ‘overweight’ recommendation and increased his target price from 990p to £12.50 (current share price £11.19).
‘We believe WH Smiths is a very cheap way of playing growth and cyclical recovery in travel,’ he said.
Taylor made positive adjustments to 2014 forecasts for the group on the back of a travel recovery, increasing 2014 and 2015 earnings before tax by 0.3% and 1% respectively.
'On the high street, the opportunities are not as great and earnings before tax will continue to grow by c£1 million. There are also indications that WH Smith is looking for new franchisees which ‘could attract independent newsagents, as a franchise gives access to a greater product range as well as WH Smith branding and signage’, said Taylor.
BAE forecast downgrade will be a short-term hit
US defence cuts are still lingering in 2014 for defence and aerospace group BAE System (BAE.L).
Jefferies analyst Sandy Morris retained a ‘buy’ and target price of 350p on the shares (current price 398p) but expected full year 2014 forecasts for earnings before tax to be 7-8% lower than forecasted £1,900 million and earnings per share 4-5% lower than forecast 40.8p.
‘To be honest, we didn’t change our BAE forecasts for every development during 2013, even though none was overtly positive,’ said Morris. ‘In short, we placed a higher value on BAE coming to enjoy greater certainty. The equity market dos appear to dislike uncertainty even more than a 4-5% downgrade on EPS.
‘The implied downgrade could matter today and in the next few weeks, but against a more certain backdrop…we believe any impact will be short-term.’
Go-Ahead a buy but needs green light on new contracts
Travel operator Go-Ahead (GOG.L) produced half year results that beat expectations for both bus and rail but further success depends on new contract wins.
Shore Capital analyst Greg Johnson maintained a ‘buy’ recommendation and target price of £21.00 on the shares (current price £20.81) following the H1 results, where profits before tax increased £9.5 million to £40.3 million. Bus operating profit was up £40.6 million on forecasts of £40 million and rail was £1m ahead of forecasts of £9 million.
‘The valuation…is now largely pricing in the successful extension of Southeastern and London Midland, which we view as highly likely,’ said Johnston. ‘However further upside from here is increasingly prevalent upon success in winning either the Thameslink or Crossrail franchises.’
CVS to benefit from dominance of big veterinary companies
Investec has upgraded veterinary practice operator CVS (CVSG.L), which it believes is well placed to benefit from industry consolidation.
Investec analyst Nicholas Keher upgraded the company from ‘buy’ to ‘add’ and placed a new target price of 340p on the shares (current price 290p).
‘We have taken an in-depth look into CVS and its end-markets and believe the company is well positioned to drive earnings upgrades over the next five years form further industry consolidation, increased service provision and by continuing to diversify into adjacent market niches,’ he said.
He added that vets in the UK were facing headwinds from a ‘lacklustre’ economy and online competition and although consolidation is ‘way off reaching critical mass, it is gathering pace’ and smaller peers will not be able to compete.
Hummingbird set to soar
Liberian-focused gold minder Hummingbird Resources (HUM.L) is trading at a ‘significant discount’ to its West African peers, according to Cantor.
Analyst Asa Bridle reiterated a ‘buy’ recommendation on the shares with a target price of 68p (current price 45p).
Bridle was impressed by Hummingbird’s latest interim results which showed the significant progress it had made in several Liberian locations and positive ‘detailed feasibility studies’ the company had carried out.
‘In [previous notes] we highlighted the significant discount that Hummingbird is trading on versus its West African gold development peer group across a range of metrics,’ said Bridle.
‘Since that time the share price has risen by 27% but the discount remains significant. We believe the upcoming news flow…should continue to drive a reduction in this discount and we reiterate our buy recommendation.’