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The Expert View: ASOS, Domino Printing Sciences and Prudential
by Harry Brooks on Mar 21, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Chariot Oil & Gas and Smiths Group.
Our daily round-up of analyst recommendations and commentary, featuring ASOS, Domino Printing Sciences, Prudential, Chariot Oil & Gas and Smiths Group.
Canaccord upgrades ASOS on 'super-normal' growth
Fashion retailer ASOS (ASOS.L) certainly isn't cheap, but its 'super-normal' growth rate means it's worth it, according to Canaccord analyst Wayne Brown, who has upgraded the shares from 'neutral' to 'buy'.
Yesterday's quarterly update showed group sales up 37% year-on-year, with US sales up 50%. Margins in the UK were down 50 basis points on last year, although this is expected to improve in the second half as a result of sourcing gains.
'Our previous neutral stance was on valuation grounds only,' Brown said. 'Whilst it is difficult to value a business which is achieving super-normal rates of growth, we feel ASOS is perfectly positioned to see these rates of growth accelerate, not slow over the next few years.
'ASOS has strong brand recognition amongst its core target customer age group, has a strong value offer due to its disruptive model and is investing heavily in service/fulfilment which should drive long term sustainable growth and share.'
Shares in the group closed at £33.07 on Wednesday, up 196p or 6.3%.
Citi downgrades Domino Printing Sciences on US egg woes
Problems with Domino Printing Sciences (DOPR.L)'s US egg tracing joint venture (JV) have overshadowed a solid second-quarter update, according to Citi analyst David Phillips, who has downgraded the shares from 'neutral' to 'sell'.
Sales in the latest quarter were up 11% year-on-year, with growth in the core business coming in at 8%.
However, there was bad news regarding Domino's 15% stake in TENMedia, which aims to become an industry leader in the US egg tracing market. The update said hold-ups in compliance approvals and local operational issues have held up progress, and the roll-out date remains uncertain.
The board of TEN has said it'll need to raise more cash before the end of the year, but Domino has said it won't be contributing any more.
'There is therefore a risk that the TEN project may be over,' Phillips warned. 'However it feels early to write it off and Domino management may be playing hardball with the JV to up their game operationally.'
Shares in the group closed at 649.5p on Wednesday, down 5.5p or 0.8%.
Not too late to joint the Pru party, Berenberg Bank says
Insurance company Prudential (PRU.L) still has further to go, according to Berenberg Bank analyst Matthew Preston, who has increased his target price and reiterated his 'buy' recommendation.
The shares leapt almost 10% last week on the back of expectation-busting financial numbers for 2012 alongside a 16% dividend rise. The dividend rise came in sharp contrast to payout cuts from rival insurers RSA and Aviva.
'While Prudential’s year-to-date rally (+29%) has eliminated much of what we had considered an unjustified conglomerate discount, the drivers of long-term outperformance remain,' Preston said.
'Prudential continues to trade a discount to peer multiples on a sum-of-the-parts basis, implying that significant near-term upside remains.'
Shares in the group closed at £11.09 on Wednesday, down 1p or 0.1%.
Cantor Fitzgerald upgrades Chariot Oil & Gas on valuation grounds
Cantor Fitzgerald analyst Sam Wahab has upgraded Chariot Oil & Gas (CHAR.L) from 'sell' to 'hold' following a decline in the value of the shares.
Wahab upgraded the shares in spite of yesterday's annual results reflecting what he termed a 'difficult year' for the company. Two dry wells in Namibia accounted for the majority of the $81 million impairment charge recognised in the income statement, and the full-year loss hit $88.5 million.
'We have long highlighted our reservations regarding Chariot’s bullish stance across its prospect inventory and the clear risks associated with frontier drilling,' Wahab said.
'Nevertheless, as the share price has continued to fall back to our TP, so today we change our recommendation to hold (from sell - since 14 January 2013) and we reiterate and maintain our target price of 21p.'
Shares in the group closed at 19.8p on Wednesday, up 0.8p or 4%.
Medical division disappoints at Smiths Group
Four of Smiths Group (SMIN.L)'s divisions reported solid progress in yesterday's trading update, but the medical arm did worse than expected, prompting Investec analyst Michael Blogg to put his target price under review.
In the six months ended 31 January revenues rose 4% in underlying terms to £1.47 billion, with pre tax profits up 3% to £233 million. However, Blogg said the update revealed mixed fortunes for the group's various arms.
'Overall operating margins declined very slightly, from 17.3% to 17.1%, but this was a balance between four up (with Detection recovering strongly, as expected, and another outstanding performance by Flex-Tek), but a big step down from Medical, from 24% to 21% as higher expenditure on sales & marketing and product development kicked in,' he said.
Blogg maintains his 'buy' recommendation on the shares, but he's cut his earnings per share estimates by 5%, meaning there's not much scope for his target price to rise just now.
Shares in the group closed at £13.21 on Wednesday, up 2.7p or 0.2%.