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The Expert View: Asos, Sainsbury's and Kier
by Michelle McGagh on Jun 24, 2014 at 05:01
A roundup of the best analyst commentary on shares, also including Booker Group and Capital & Regional.
Fire at Asos won’t have material impact on P&L
A fire that ravaged three floors of the Asos (ASOS) stockholding building and brought the website down over the weekend won’t have a material effect on the business, say analysts.
Numis analyst Andrew Wade retained a ‘buy’ rating and target price of £60.00 on the shares, which were trading at £27.35 at yesterday's close.
The fire in Barnsley was thought to have compromised around 20% of the stock on site and meant the website closed to new orders on Friday night and didn’t reopen until Monday morning.
‘Both the value of the stock and the losses incurred due to business interruption are fully covered by insurance, and we do not see any material impact on the underlying investment thesis,’ said Wade.
‘Clearly there will be some changes to the shape of the profit and loss – two days of lost weekend revenue would be worth £8 million – and we would expect some operating expenditure costs which Asos cannot claim in full.
‘Nevertheless, we expect the overall profit and loss impact on full year 2014 after insurance recoveries to be minimal.’
Look to Booker for income not growth, says Barclays
Wholesaler Booker Group (BOK) has been hit by a sell-off in growth stocks but Barclays argues it has ‘income attractions’.
Analyst Richard Taylor retained an ‘overweight’ rating and a target price of 187p. Shares were trading at 133.2p at yesterday's close. He said that although ‘the share price has changed…the investment case has not’.
‘Booker shares have been in free-fall amid the sell-off in “growth” stocks,’ he said. ‘Booker has strong income attractions. Our forecast dividend yields for full year 2015 and 2016 are 5.5% and 5.9%.’
Taylor said that while a price war was ongoing among the big four supermarkets, Booker’s business had shown resilience in the face of pressures.
‘Booker’s independent retail customers look likely to remain under pressure, but this has been the case since Booker listed in 2007, a period over which group earnings before interest and taxes increased by over 250%,’ he said. ‘Investors will have their own views on the growth versus value debate, but with the fundamentals unchanged, we retain our “overweight” rating and 187p target price.’
Capital & Regional completes ‘transformational’ deal
Property company Capital & Regional (CAL) has been placed ‘under review’ after announcing a major acquisition and plans to convert to real estate investment trust (Reit) status.
Last Friday Capital & Regional announced the purchase of an additional 62.6% stake in the Mall Fund of six regional shopping centres. That deal doubled the size of the company, increasing retail exposure by £428.5 million. The next step is to acquire the remaining 8% of the fund and convert to Reit status.
This led Peel Hunt analyst Kate Renn to place the stock ‘under review’ from ‘hold’ with a target price of 50p. Shares were trading at 46.5p at yesterday's close.
She said the deal was ‘transformational’ and ‘importantly the equity raised doubles the size of the company and significantly improves liquidity’. She added there was ‘potential for a 6%+ dividend yield’.
Sainsbury’s move to bring back Netto is ‘astute’
News that Sainsbury’s (SBRY) plans to bring discount supermarket Netto back to Britain shows the it is not ‘inclined to be a passive victim of the rise of the value segment’.
Shore Capital analyst Clive Black retained a ‘hold at 317p’ on the shares, which were trading at 315.3p at yesterday's close.
Joining forces with Dansk Supermarkets, which owns the Netto brand, will see Sainsbury’s bring 15 of the value stores to the north of England at a cost of £25 million – an area where Sainsbury’s has a low market share and discount supermarkets have a strong hold.
Black said if the plan did not work there would be ‘no major harm done to Sainsbury’s earnings line or balance sheet’.
He added: ‘If the trial takes off, then a new dynamic may be introduced in the UK grocery market, allowing Sainsbury’s to participate in the growth of the grocery discount segment, a market that its brand has struggled to access and, in our view, will continue to do so.’
Black said the move was ‘potentially astute’.
Buy Kier before investor day update, says Liberum
Liberum analysts are buying into construction and property group Kier (KIE) ahead of its investor day on 3 July.
Analyst William Shirley retained a ‘buy’ recommendation and a target price of £19.15 on the shares, which were trading at £17.26 at yesterday's close.
He was impressed by the contract win rate, a strong pipeline and noted there were signs that risks were reducing.
‘Following a detailed update with management we leave our estimates unchanged,’ he said. ‘Construction is growing strongly, with further upside to revenue, synergies are on track and property is delivering as expected. Homes margin progress is slow with house price inflation being offset by cost pressures and additional contingencies.’
Shirley added that investor day should be a ‘positive catalyst’ and he predicted a ‘renewed emphasis on the benefits of the combined group and the opportunities for organic growth, without ruling out acquisition’.