The Expert View: Aviva, Chemring and Darty

Our daily round-up of analyst recommendations and commentary, featuring Aviva, Chemring, Darty, BSkyB and EMIS Group.

Key stats
Market capitalisation	£10,834m
No. of shares out	2,918m
No. of shares floating	2,912m
No. of common shareholders	not stated
No. of employees	36562
Trading volume (10 day avg.)	10m
Turnover	£36,003m
Profit before tax	£483m
Earnings per share	16.68p
Cashflow per share	34.47p
Cash per share	793.02p

*Correct as at 24 Jan 2013

Aviva remains undervalued, Berenberg Bank says

Even after a 31% rise in the shares over the past six months insurance group Aviva (AV.L) is still undervalued, according to Berenberg Bank analyst Matthew Preston.

The limited success of previous restructuring attempts means the latest plans have been given limited credit, Preston said, with much analyst commentary focusing on execution risk.

'However, with delivery of phase one of the restructuring (disposals and capital rebuilding) drawing to a close, we believe that much of this execution risk should have evaporated,' he said. The ramp-up in the shares has been driven mainly by a sector re-rating, he added, rather than by recognition of the plan's potential.

'As Aviva continues to stride forward with phase two, we expect this latent value to crystallise,' he said. 'We remain comfortable buyers, tweaking our price target to 470p following the adjustment of our forecasts to reflect recent disposals.'

Shares in the group closed at 374.7p on Thursday, up 6.1p or 1.7%.

Key stats
Market capitalisation	£576m
No. of shares out	193m
No. of shares floating	190m
No. of common shareholders	not stated
No. of employees	4679
Trading volume (10 day avg.)	1m
Turnover	£724m
Profit before tax	£70m
Earnings per share	36.06p
Cashflow per share	58.77p
Cash per share	47.13p

*Correct as at 24 Jan 2013

FinnCap puts Chemring under review as results disappoint

A weak set of annual results from military supplier Chemring (CHG.L) has led FinnCap analyst David Buxton to put his 'hold' rating under review.

Full-year results - which come in the wake of several profits warnings - show turnover up a lacklustre 2% to £740.3 million, adjusted pre-tax profits down 42% to £70.1 million and earnings per share of 28.5p, down 43%. The dividend has also been cut by 36% to 9.5p for the full year.

The new management team has good scope to turn things around, but for now the outlook looks decidedly uncertain, Buxton said. 'The ongoing reductions in NATO defence budgets as well as the withdrawal from Afghanistan will mean demand for countermeasures and land mine detection systems will continue to see declines,' he said.

'The shares post their de-rating appear cheap, but management still has to prove itself and the scale of defence cuts, especially in the US, is remains unclear.'

Shares in the group closed at 297p on Thursday, up 14.7p or 5.2%.

Key stats
Market capitalisation	£334m
No. of shares out	530m
No. of shares floating	528m
No. of common shareholders	not stated
No. of employees	16986
Trading volume (10 day avg.)	1m
Turnover	3,386m EUR
Profit before tax	-32m EUR
Earnings per share	-0.06 EUR
Cashflow per share	0.18 EUR
Cash per share	0.16 EUR

*Correct as at 24 Jan 2013

UBS downgrades Darty on rising competition

Darty (DRTY.L) is likely to suffer as competition from other electrical goods retailer ramps up, according to UBS analyst Adam Cochrane, who has downgraded the group from 'buy' to 'neutral'.

Cochrane said the restructuring plan announced in the December interims was well received and answered the majority of the big structural issues, and an exit from the Spanish market could improve margins in the years ahead.

However, the analyst warned that this won't be enough to offset increasing competition from other retail channels. 'With aggressive price competition from hypermarkets and pureplay e-commerce retailers we would need to see more evidence of a stabilisation in sales and gross margin to consider becoming more positive,' he said.

The analyst's target price falls 5p to 60p.

Shares in the group closed at 64p on Thursday, up 0.8p or 1.2%.

Key stats
Market capitalisation	£13,063m
No. of shares out	1,649m
No. of shares floating	986m
No. of common shareholders	not stated
No. of employees	17431
Trading volume (10 day avg.)	2m
Turnover	£6,791m
Profit before tax	£906m
Earnings per share	52.16p
Cashflow per share	71.96p
Cash per share	70.11p

*Correct as at 24 Jan 2013

Investec raises target price for BSkyB

Investec analyst Steve Liechti has increased his target price for British Sky Broadcasting (BSY.L) ahead of Thursday’s first-half results.

The analyst has a 'buy' recommendation on the shares, and said he's positive about the chances of a re-rating for a big media business with good cash generation.

He expects earnings per share to rise 16% in the latest results, on sales up 4.6%. 'While pay TV subscription growth remains modest, total product sales, and triple play/economies of scale boost overall sales, margin and earnings,' he said.

'Valuation looks low end against UK media, but a premium to international pay TV peers - reasonable in our view given Sky’s strong position/delivery.' Liechti's target price rises 20p to 870p.

Shares in the group closed at 794p on Thursday, down 6p or 0.8%.

Key stats
Market capitalisation	£439m
No. of shares out	59m
No. of shares floating	27m
No. of common shareholders	not stated
No. of employees	898
Trading volume (10 day avg.)	0m
Turnover	£73m
Profit before tax	£17m
Earnings per share	28.71p
Cashflow per share	40.33p
Cash per share	21.53p

*Correct as at 24 Jan 2013

Merchant Securities puts EMIS Group's target price under review

Merchant Securities analyst Roger Phillips has put his target price for healthcare software firm EMIS Group (EMIS.L) under review after full-year results missed his expectations.

Revenues over the year came in at £88 million, missing Phillips's estimate by £2 million, and net cash was also lower than he expected at £7.7 million versus the £15.5 million expected due to a doubling of capex.

Nonetheless, the analyst retains his 'buy' recommendation. 'While the numbers look slightly disappointing, expected organic growth in both revenue and adjusted earnings is still well into double-digits; consensus having been upgraded throughout the year,' he said.

'We have placed our target price under review (was 1,050p) and expect short-term softness in the shares, which we would interpret as a buying opportunity.'

Shares in the group closed at 746.2p on Thursday, down 153.8p or 17%.