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The Expert View: Admiral, Abcam and BP
by Michelle McGagh on Mar 06, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also including Legal & General and Ferrexpo.
Sell Admiral as it comes under fire from regulator and poor rates
Shore Capital has reiterated its ‘sell’ recommendation for insurer Admiral (ADM.L) despite better than consensus full year results.
Eamonn Flanagan said the 2013 results reflected ‘better than we had forecast levels of profit commission and a slightly better than we had anticipated result from price comparison’ but the group has acknowledge ‘the pressures on rates’ and other revenue is under regulatory threat.
‘Admiral’s shares performed well over the past few months and now trade at 13.4x price earnings ratio for 2014…We view this price earnings ratio as much too rich given the on-going confusion over the rating environment, with UK rates down c13% in 2013…the uncertainty surrounding the claims environment and the regulatory ‘fog’ enveloping the UK personal motor insurance space,’ said Flanagan.
L&G could face pressure from delayed retirement
The number of people delaying retirement could prove problematic for insurer Legal & General (LGEN.L), according to Societe Generale.
Analyst Abid Hussain retained a ‘hold’ recommendation and a target price of 220p after 2013 full year earnings of £1,158 million from the group, 3.8% below consensus. Hussain put the miss down to the US business ‘which included mortality charges in H2, continued investment in the workplace savings business…and continued investment project expenditure’.
While the results were not too worrying for Hussain, he expressed concern about the insurer’s annuity business.
‘We are concerned that the individual annuity market may remain subdued for an extended period of time as individuals continue to defer annuitisation whilst there is still so much regulatory focus on the market,’ he said. Individual annuities are a key focus for L&G’s overall business, although in the medium term the gap could be plugged via increased volumes of bulk annuity deals.’
Buy into Abcam as share price drops, says Numis
Antibody supplier Abcam (ABC.L) has been upgraded from ‘hold’ to ‘buy’ by Numis analyst Charles Weston.
Weston placed a target price of 510p on the shares despite a sharp drop in the share price earlier in the week as it revealed sluggish Japanese growth despite the Japanese government investing in research.
‘We are upgrading our recommendation to ‘buy’, from ‘hold’, following the sharp fall in the share price [on Wednesday morning],’ he said. ‘In our view little has changed in the fundamental investment thesis for Abcam and history has taught us that periods of weakness in its share price are the right time to buy into its highly defensive business model.’
Weston said he ‘expected margins and cash generation to remain high due to the characteristics of the product and Abcam’s digital platform’ and that management’s investment in new growth initiatives has ‘yet to translate to accelerating growth rates, which could start to be delivered over the next six-12 months’.
BP has a good strategy but there is better value elsewhere
Petrol giant BP (BP.L) is on message when it comes to strategy but is struggling to differentiate itself, according to Barclays analyst Lydia Rainforth.
Rainforth retained an ‘underweight’ recommendation and a target price of £5.50 on the shares following a strategy presentation.
‘BP’s strategy presentation contained all the right messages. Growing operating cashflow combined with a disciplined approach to a capital expenditure should see free cash flow is then set to be used by the management team to support growing shareholder distribution,’ she said.
However, this strategy is not without its problems, as BP is struggling to set itself apart from its peers.
‘The challenge from an investment perspective is that BP is far from the only company to be offering free cash flow growth over this period and as such is not differentiated compared to the peer group on our forecasts.,’ said Rainforth, adding that the stock is trading at a 10% premium to the wider sector and there ‘is better value elsewhere in European energy’.
Ukraine unrest could prove beneficial to Ferrexpo
Political unrest in Ukraine have impacted shares in iron ore company Ferrexpo (FXPO.L), but it stands to benefit from a weakening in the local currency.
Investec analyst Louise Collinge retained a ‘buy’ recommendation on the shares and placed a target price of 240p.
‘While the political uncertainty in Ukraine has adversely affected Ferrexpo’s share price, a sustainable weakening of the Ukraine hryvnia looks an increasingly likely outcome, which would have a positive effect on the company’s costs,’ she said.
Collinge added that the hryvnia has already weakened ‘despite being theoretically pegged to the US dollar’ and that would not only reduce costs for the company but ‘a worsening economic situation could also precipitate a refinancing package that could see Ferrexpo being repaid at least some of the c$300 million it is owed in VAT’.
‘We continue to believe that Ferrexpo is a reliable iron ore producer offering very minimal operation risk,’ she said. ‘We, and the market, expect iron ore prices to fall in the future, although there are differing views on the timing and quantum of the fall.’