The Expert View: ASOS, Domino Printing Sciences and Prudential

Our daily round-up of analyst recommendations and commentary, featuring ASOS, Domino Printing Sciences, Prudential, Chariot Oil & Gas and Smiths Group.

Key stats
Market capitalisation	£2,698m
No. of shares out	82m
No. of shares floating	49m
No. of common shareholders	not stated
No. of employees	842
Trading volume (10 day avg.)	0m
Turnover	£495m
Profit before tax	£22m
Earnings per share	26.74p
Cashflow per share	36.43p
Cash per share	31.53p

*Correct as at 20 Mar 2013

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%.

Key stats
Market capitalisation	£733m
No. of shares out	112m
No. of shares floating	109m
No. of common shareholders	not stated
No. of employees	2270
Trading volume (10 day avg.)	0m
Turnover	£312m
Profit before tax	£41m
Earnings per share	36.57p
Cashflow per share	44.49p
Cash per share	42.71p

*Correct as at 20 Mar 2013

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%.

Key stats
Market capitalisation	£28,169m
No. of shares out	2,557m
No. of shares floating	2,540m
No. of common shareholders	not stated
No. of employees	25414
Trading volume (10 day avg.)	6m
Turnover	£55,476m
Profit before tax	£2,197m
Earnings per share	86.36p
Cashflow per share	89.90p
Cash per share	249.64p

*Correct as at 20 Mar 2013

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%.

Key stats
Market capitalisation	£39m
No. of shares out	201m
No. of shares floating	149m
No. of common shareholders	not stated
No. of employees	2
Trading volume (10 day avg.)	1m
Turnover	-100,000m USD
Profit before tax	-100,000m USD
Earnings per share	-99,999.99 USD
Cashflow per share	-99,999.99 USD
Cash per share	0.47 USD

*Correct as at 20 Mar 2013

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%.

Key stats
Market capitalisation	£5,192m
No. of shares out	393m
No. of shares floating	390m
No. of common shareholders	not stated
No. of employees	23200
Trading volume (10 day avg.)	1m
Turnover	£3,030m
Profit before tax	£257m
Earnings per share	64.91p
Cashflow per share	101.24p
Cash per share	52.35p

*Correct as at 20 Mar 2013

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%.