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The Expert View: Xaar, HSBC and Anite

The Expert View: Xaar, HSBC and Anite

HSBC UK spin-off could add 60p to share price

A spin-off of HSBC’s (HSBA.L) UK arm would potentially add 60p to the shares, one analyst has said.

Based on a report in the Financial Times that HSBC has sounded out investors about a flotation of its UK arm – with ‘thinking at an early stage’ – Espirito Santo analyst Shailesh Raikundlia said the listing of HSBC subsidiaries could provide a further catalyst for the group that he already rates a ‘buy’.

‘Based on the assumption that 80% of value in Europe is UK and that the ring fenced operations represent half of the UK, which could be valued at £20bn based on 10x P/E, then this could potentially add around 60p to our SoTP valuation of 850p,’ commented Raikundlia.

‘Therefore, such a move would crystallise a higher rating for the whole group, especially in the light of buoyant investor sentiment on the UK economy.’

‘For HSBC, a carve-out of the UK business would help to deal with the requirements of the incoming Vickers rules, which demand that UK banks ring-fence their domestic retail banking operations,’ the analyst added.

Shares in HSBC slipped 0.2% on Monday to 657p.

‘Buy’ Anite after sharp sell-off

Demand remains and Anite (AIE.L) has not lost market share, noted Canaccord Genuity analyst Bob Liao as he bumped up his recommendation on the shares to ‘buy’ after interim figures from the company.

Anite, a software company that specialises in providing testing systems for mobile phones, reported a 64% decline in pre-tax profits in the six months to the end of October, to £5.1 million. Revenues were down 6% to £57.5 million.

But overall, Liao noted, the company’s interim numbers were in line with its previous guidance. He noted that a ‘disappointing’ performance from the company’s dominant handset testing business was ‘largely due to external factors’. In addition Anite’s competitors have suffered from the same tough trading conditions.

Anite’s share price has tumbled 38% so far this year and most analysts now rate the company a ‘strong buy’.

‘Looking ahead, the fundamental demand drivers for the Handset Testing business remains in place,’ said Liao, in a research note entitled ‘signs of stabilisation’.

After ‘We maintain our price target at 106p but switch our recommendation to BUY (from Hold) in light of the share price performance.’

Shares in Anite rose nearly 6% yesterday, to close at 91p.

Xaar shares tipped to soar even higher

Shares in Xaar (XAR.L), which have already shot up 300% over the past year, ‘can continue to perform’, say analysts at Numis, who have slapped an ‘add’ recommendation on the producer of inkjet printing heads.

Xaar is a favourite among several well-regarded fund managers. Ciytwire AA-rated fund manager fund manager Nigel Thomas owns nearly 10% of Xaar in his AXA Framlington UK Select Opportunities Fund. He has held the shares for over ten years and recently topped up his holding, arguing that Xaar counts among a growing band of companies that are paying more attention to long-term shareholder returns.

Numis analysts Scott Cagehin and David Larkham wrote: ‘We believe that investing in Xaar gives exposure to a well invested, high returns business that has the potential to capitalise on strong growth dynamics in its end markets.’

‘We believe that Xaar can generate good growth in the medium-term with the optionality of accelerated growth, once again, as further markets convert to digital printing.’

The pair have given Xaar a target price of £12.00. Xaar shares rose 4.3% on Monday to £11.11.

Double upgrade: Domino’s Pizza is cheap and a potential bid target

Analysts at Panmure Gordon have upgraded Domino’s Pizza (DOM.L) from sell to buy – skipping their intermediate ‘hold’ ranking – as they eye a ‘compelling entry point’ for investors.

Shares in the pizza company have fallen over the past six months as investors first reacted to the news that chief financial officer Lee Ginsberg was to retire and then last week that chief executive Lance Batchelor was off too.

But nothing has changed, argue the Panmure analysts: Domino’s ‘has always been an excellent business’, but the shares had previously been too pricey.

Now though, ‘Domino’s is trading at an 18 month low and a forward P/E of 17.8x, not seen since 2009. We change our long-standing Sell recommendation to Buy, believing that the stock’s valuation does not reflect the c20% EPS growth forecast next year,’ they said.

A private equity company could also swoop in, argued the analysts.

Domino’s shares fell 2.2% yesterday, to close at 469p.

‘Self-help’ opportunity offers ‘clear upside’ for FirstGroup

Investors should ‘buy’ shares in FirstGroup (FGP.L), suggested Liberum analyst Gerald Khoo in a review of UK public transport shares in which he also gave Go-Ahead (GOG.L) the thumbs up.

Khoo identified three main risks for the sector: renewals of contracts; rule changes, with the potential re-regulation of UK bus services; and the possibility of rail renationalisation should Labour win the next General Election.

He concluded: ‘We prefer stocks that have self-help initiatives that can deliver material earnings improvements despite these overhanging uncertainties.’

FirstGroup has the ‘clearest self-help opportunities’, he said. ‘Although there is no silver bullet solution… low investor expectations create the opportunity for outperformance through a steady recovery.’

Khoo also assigns Go-Ahead a 'buy' rating, while he gives both National Express (NEX.L) and Stagecoach (SGC.L) ‘hold’ ratings.

Shares in FirstGroup rose 0.3% on Monday, to 117p.

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