The Expert View: WS Atkins, Fidessa and Telecity
Our daily roundup of the best analyst commentary on shares, also including Keller and Senior.
WS Atkins name in the frame for Balfour Beatty buy
Less than a week after Carillion pulled out of a merger deal with Balfour Beatty, it is rumoured that engineering and design consultancy WS Atkins (ATKW) is looking to move in.
According to The Sunday Telegraph, Atkins is competing with Canadian rival WSP Global and two private equity firms in the second round of talks to acquire Balfour Beatty’s design arm Parsons Brinckerhoff.
Peel Hunt analyst retained a ‘buy’ recommendation for Atkins and a target price of £15.85 on the shares, which slipped 1.5% to £12.75 yesterday.
‘The acquisition would make Atkins a more geographically balanced business and get Atkins near to achieving its strategic goal of reducing UK exposure from 50% to 25% in one fell swoop,’ he said. ‘The acquisition would require a substantial rights issue… and we believe this has been overhanging the share price since the announcement of the potential disposal by Balfour Beatty on 6 May.’
Share weakness makes Fidessa a ‘buy’
Financial markets software specialist Fidessa (FDSA) has been upgraded after weakness in the share price.
Numis analyst David Toms upgraded his recommendation from ‘add’ to ‘buy’ and retained a target price of £27.20 following first half results that were ‘comfortably in line’ with expectations. The shares fell 0.5% to £20.45 yesterday.
‘H1 is slightly ahead of our expectation at the [earnings] level…despite strong-than-forecast currency headwinds leaving revenue slightly light,’ he said.
‘Overall the business is panning out as management have previously guided with a return to underlying growth as headwinds from attrition fade and the strong growth from derivatives shows through. We retain our £27.20 target price and move back to “buy” following recent weakness in the shares.’
Liberum concerned about Telecity’s margin sustainability
Data management facilities provider Telecity Group (TCY) posted first half results in line with expectations but Liberum analysts are concerned about margins.
Analyst William Shirley reiterated his ‘sell’ recommendation and target price of 685p. The company reported revenue growth guidance of 9% to 11% which is consistent with Shirley’s estimates.
‘Although there is more discipline within the business there is no sign that capital expenditure is being reined in so the jump in free cashflow that some had hoped for will not materialise,’ he said. ‘The company and wider industry remain in growth mode. We are concerned as to the margin sustainability and we cannot justify the current valuation.’
Shares fell 4.4% to 756p on yesterday's news.
Keller delivers higher growth but risks remain
Good growth at ground engineering company Keller (KLR) has pushed the company ahead of expectations.
Jefferies analyst Anthony Codling retained a ‘buy’ rating and target price of £14.00 on the stock, which rose 1.6% to 889p in yesterday's trading.
‘Keller has delivered underlying profit growth of just over 21% in the first half of 2014, which is significantly higher growth than seen in the markets in which it serves. We are leaving our estimates for the full year and for 2015 unchanged,’ he said.
Despite the good results, Codling noted there were some risks for Keller: ‘Keller is exposed to one of the earliest parts of the construction cycle and we estimate that its exposure is around 90% to the new-build sector. Its fortunes are therefore very finely tuned to the share end of the construction cycle.
‘Should the recovery seen in the US markets falter or economic conditions deteriorate in its other regions, our estimates may need to be reduced. Contract risks are also an ever-present danger.’
Senior profits up but Rollins departure raises questions
Aerospace engineering company Senior (SNR) has reported a profit rise of 22% in the first half of the year but the news of chief executive Mark Rollins’ retirement in 2015 is a ‘disappointment’, according to Investec.
Investec analyst Thomas Rands has placed his ‘add’ recommendation and 290p target price under review. Shares fell 1.7% to 258p yesterday.
‘A reassuring set of interim results with profitability and earnings per share ahead of our expectations despite the well-known foreign exchange headwinds. We do not expect to adjust our full-year forecasts having recently revised them down,’ he said. ‘The retirement of chief executive Mark Rollins is a disappointment, as is the slower than anticipated improvement at Thermal Engineering, acquired in 2013.’
Rands emphasised the impact of Rollins’ departure: ‘We are disappointed that Rollins is due to retire in H1 2014 and expect the uncertainty to impact the shares in the short-term until a successor is found.’