The Expert View: Whitbread, Xaar & Ashtead
A roundup of the best analyst comments on shares, including STV Group and SDL.
Investec upgrades Whitbread after first quarter growth
Whitbread (WTB), owner of Costa Coffee and Premier Inn, has been removed from Investec’s ‘sell’ list following outperformance in its first quarter results.
Analyst James Hollins upgraded the stock from ‘sell’ to ‘hold’ and retained a target price of £41.00, after the group reported like-for-like sales of 6.9% and ‘marginal outperformance across all divisions’. The shares closed 2.9% higher at £42.90.
‘We are taking the opportunity to review forecasts – full-year 2015 and full-year 2016 earnings per share move c.2% and c.3% ahead of consensus respectively – and move our recommendation from “sell” to “hold”,’ said Hollins. ‘A premium rating and key risks around incremental hotel returns dilution preclude a more positive stance, although the strength of trading across its UK brands leads up to remove Whitbread from our ‘sell’ list.’
Profits warning cracks Xaar shares
Numis has downgraded commercial inkjet printer maker Xaar (XAR) after stating its ceramic tile printing market will negatively affect revenue.
Numis analyst Scott Cagehin downgraded his rating from ‘buy’ to ‘hold’ but maintained a target price of 800p. Shares in the company slumped 24% yesterday to 563p.
Cagehin was unimpressed by a trading update that showed pricing pressure in the ceramic tile market ‘will have a negative impact on revenue expectations and therefore profits’. ‘We have downgraded our forecasts by 12% to reflect this,’ he said. ‘In the short-term we anticipate the potential for earnings risk given second half weighting expectation and some uncertainty on how demand will stability.’
Although the short-term prospects are under pressure, Cagehin said ‘long-term potential for enhanced earnings growth is apparent, driven by new product introductions and the potential for markets to convert to digital printing’.
Liberum likes Ashtead but currency fears hit shares
Full-year figures from equipment rental company Ashtead (AHT) upset markets but analysts were keen to play up the stock.
Liberum analyst David Brockton reiterated his ‘buy’ recommendation and target price of £10.30. However, shares dropped 6% to 832p to make Ashtead the biggest FTSE faller following concerns about the impact a strong pound will have on its dollar earnings.
This did not put off Brockton, although he noted ‘FX headwind may temper the reported rate of growth through full year 2015’.
‘Ashtead’s full-year figures have again beaten our forecasts by 3% at earnings per share and 8% at dividend per share,’ he said. ‘Underlying growth momentum was sustained through Q4 with 19% revenue growth.’
He added that ‘the business still shows no sign of slowing down’ and ‘as recovery continues, Ashtead’s financing structure and younger fleet base provides a competitive advantage’.
Peel Hunt says STV trading at ‘unwarranted’ discount
Scottish broadcaster STV (STVG) trades at an ‘unwarranted’ discount to its peers, leading Peel Hunt to increase its target price.
Analyst Malcom Morgan retained a ‘buy’ rating and revised the target price up from 400p to 470p. The shares gained 11.25p or 3.1% to 371p.
‘STV Group currently trades at a 28-36% discount to ITV and UTV,’ he said. ‘Given the robust financing, the strong digital presence and mid-teens earnings growth, we believe this discount is unwarranted. Moreover, we also highlight the potential earning enhancement that could come from the development of the digital suite and production business.
‘With the share readmitted to the FTSE All Share, we revise our target price to 470p, which still represents a 10% discount to its two peers.’
Morgan noted a new banking facility provided both a lower margin and ‘less onerous covenants’.
Panmure praises SDL for repositioning
Panmure Gordon has praised the efforts of translation software provider SDL (SDL) to reposition itself and believes it provides a long-term opportunity.
Analyst George O’Connor reiterated his ‘buy’ rating and target price of 421p on the shares, which trading up 0.7% at 332p yesterday.
‘We have long talked about SDL’s efforts to better understand the current marketplace zeitgeist and the market opportunity in customer experience management (CXM),’ said O’Connor. ‘In our view, digitally aware customers are forcing businesses to change how they interact. There is undoubted growth in this market – but the key is to drive profitable growth by better understanding and addressing the end consumer – kudos to SDL for making a stab at it.’
He added that SDL’s product has ‘matured’ over the past 12 months.
‘For us the longer run opportunity for SDL is not to simply translate “stuff” but help companies sell better,’ said O’Connor. Better CXM execution will fuel better software sales and increase group profitability ahead of current estimates.’