The Expert View: ARM Holdings, Ladbrokes and Babcock

Key stats
Market capitalisation	£13,097m
No. of shares out	1,381m
No. of shares floating	1,369m
No. of common shareholders	not stated
No. of employees	2261
Trading volume (10 day avg.)	3m
Turnover	£577m
Profit before tax	£161m
Earnings per share	11.51p
Cashflow per share	12.76p
Cash per share	27.98p

*Correct as at 11 Mar 2013

ARM ‘equal-weight’ despite weak pound boon

It’s the weak pound, stupid! A recent spurt in ARM Holdings (ARM.L)’s share price is a result of the rapid weakening of the British pound, not the roll-out of the chip designer’s big.LITTLE processing technology, say Morgan Stanley analysts.

‘There has been some focus on big.LITTLE post Mobile World Congress, but we believe that the roll out of big.LITTLE is occurring according to plan (not faster), with Samsung the main OEM pushing, while Qualcomm has announced no new product yet.’

Conversely, ‘a 10% weaker GBP should lead the shares to rise 15%,’ they say.

Even if the helpful weak pound dragged ARM’s share price up to £10.11, there is still not enough upside to warrant an upgrade from ‘equal-weight’, they explain.

Shares in the group closed at £9.49 on Monday, up 3p or 0.3%.

Key stats
Market capitalisation	£2,190m
No. of shares out	909m
No. of shares floating	890m
No. of common shareholders	not stated
No. of employees	15220
Trading volume (10 day avg.)	4m
Turnover	£1,084m
Profit before tax	£190m
Earnings per share	20.65p
Cashflow per share	26.62p
Cash per share	2.14p

*Correct as at 11 Mar 2013

Ladbrokes has found its 'missing link', Investec says

Betting chain Ladbrokes (LAD.L) has found the 'missing link' by signing up software developer Playtech to advise it on its digital business, according to Investec analyst James Hollins.

'Ladbrokes has wasted no time in signing up with Playtech to drive marketing improvements into its online platform, also implementing a wider range of Playtech’s gaming products,' Hollins said. Ladbrokes will take on 40 staff from Playtech to form a new digital marketing team, and eventually the two companies' gaming platforms will be merged.

'A strong digital marketing/customer relationship management function was, in our view, the key factor missing from the Ladbrokes online channel and we welcome the deal, with financial upside shared (72.5/27.5) between Ladbrokes and Playtech.'

Hollins has a 'buy' recommendation on Ladbrokes, and a 250p target price.

Shares in the group closed at 240p on Monday, up 14.6p or 6.5%.

Key stats
Market capitalisation	£3,920m
No. of shares out	360m
No. of shares floating	354m
No. of common shareholders	not stated
No. of employees	25325
Trading volume (10 day avg.)	1m
Turnover	£2,848m
Profit before tax	£154m
Earnings per share	42.76p
Cashflow per share	75.61p
Cash per share	28.87p

*Correct as at 11 Mar 2013

JP Morgan lifts target price for Babcock International

JP Morgan analyst Andrea O'Keeff has increased her target price for Babcock International (BAB.L), saying strong recent results from the outsourcing giant's rivals suggest the whole sector is enjoying a bounce.

'Babcock is our preferred stock in the sector as we believe it has the most earnings per share [EPS] upside over the next two years,' the analyst said, reiterating her 'overweight' recommendation.

'All three of the public sector stocks seem to have good momentum this year but Babcock has been overtaken by Serco and Capita after their results bounce and we believe it could be due a catch up when it releases its Q4 trading statement on 3 April.'

Having increased her forecast for organic revenue growth potential, O'Keeff's upper case scenario for EPS upside to March 2015 rises from 36% to 48%. Her target price rises from £11.20 to £12.30.

'Our formal forecasts assume 7% organic revenue growth over the next three years. Babcock’s £14 billion pipeline, however, would indicate that organic revenue growth could pick up to 23% per annum, which is the new rate we have it peaking at by 2015,' she added.

Shares in the group closed at £10.91 on Monday, up 12p or 1%.

Key stats
Market capitalisation	£3,695m
No. of shares out	274m
No. of shares floating	195m
No. of common shareholders	not stated
No. of employees	5324
Trading volume (10 day avg.)	0m
Turnover	£984m
Profit before tax	£258m
Earnings per share	94.86p
Cashflow per share	116.41p
Cash per share	79.19p

*Correct as at 11 Mar 2013

Admiral's already peaked, Berenberg Bank warns

2012 represents a high water mark for car insurer Admiral (ADM.L)'s earnings, Berenberg Bank analyst Peter Eliot has warned, and he expects the de-rating of the shares to continue.

'We see little reason for the stock to retain its remaining premium rating,' Eliot said, reiterating his 'sell' recommendation. 'The core UK motor business is now ex-growth and the outlook for earnings over the coming years is not good. Admiral may be able to sustain earnings to an extent with reserve releases but we do not believe that earnings growth will be possible.'

The analyst said the lack of further growth of price comparison websites and the increase in competition in Admiral’s target markets means the UK motor business doesn't have anywhere to go. 'Admiral’s average premium fell by 9% across 2012, mainly due to price reductions,' he noted.

Shares in the group closed at £13.59 on Monday, up 6p or 0.4%.

Key stats
Market capitalisation	£219m
No. of shares out	197m
No. of shares floating	182m
No. of common shareholders	not stated
No. of employees	2361
Trading volume (10 day avg.)	0m
Turnover	£334m
Profit before tax	£12m
Earnings per share	6.17p
Cashflow per share	15.36p
Cash per share	3.05p

*Correct as at 11 Mar 2013

Citi bumps up target price for Marshalls

Citi Research analyst Aynsley Lammin has increased his target price for Marshalls (MSLH.L) saying the paving specialist is well placed to benefit once the sector picks up again.

Lammin has a 'neutral' recommendation on the shares, and warns that in the near term volumes are likely to remain subdued and current valuation multiples look 'fair'. Longer term he sees lots of potential though.

'Management has taken strong measures on cost cutting and cash-flow and the effect of these should result in profit growth this year.

'The company is well managed and has a strong position in its markets and we estimate will see a sharp improvement in profitability and returns once volumes start to recover.' Lammin's target price rises from 96p to £1.10.

Shares in the group closed at 111p on Monday, up 1p or 1%.