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The Expert View: BAE Systems, BSkyB and Tate & Lyle
A roundup of analysts' commentary on shares, also including Ithaca Energy, Firstgroup and Kenmare Resources.
Our daily round-up of analyst recommendations and commentary, featuring BAE Systems, BskyB, Tate & Lyle, Ithaca Energy, Firstgroup and Kenmare Resources.
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US shutdown no concern for BAE Systems... yet
The background noise hasn’t changed for defence and aerospace group BAE Systems (BAE.L), which is bedevilled by two issues: the US partial government shutdown and negotiations over a deal to sell jets to Saudi Arabia.
But neither of these problems are likely to change the tone of the commentary in a financial update due from BAE on Thursday, Cantor analyst Andy Chambers reckons.
The US shutdown, which means many US government staff have been sent home temporarily, will be a ‘cost’ for the company but ‘is probably not of sufficient scale to be a concern, yet’.
Chambers, like other analysts and economists, assumes US politicians will reach a deal. But: ‘A prolonged shutdown is required to throw guidance off course as it impacts more of the production and support activities, including areas such as disbursements and procurement.’
The same goes for BAE’s discussions with Saudi Arabia over the sale of 72 Eurofighter Typhoon jets in a deal that was secured six years ago but has since been bogged down by cost issues.
‘Assuming both of these issues are resolved, we would expect BAE to test our TP before the year end,’ said Chambers, reiterating his ‘buy’ recommendation and target price of 490p.
Shares in BAE dropped 0.8% yesterday, to close at 447p.
Champions League battle ‘critical’ for BSkyB shares
Winner takes it all: the result of an auction of rights to air Champions League football matches ‘could be a turning point’ for BSkyB (BSY.L) shares, analysts said on Monday.
‘With Sky stock close to a 10-year high, we see the rights to the Champions League as critical, more important than the actual price paid,’ said Nomura’s Matthew Walker.
BSkyB is battling BT’s new sports TV service for dominance of the live football telly market.
‘If Sky retains the rights, even at a high cost, that will signal a robust defence of its business model and it could cut cost elsewhere (eg, movies),’ continued Walker, who has a ‘buy’ rating for BskyB, and a 975p price target.
Walker added: ‘If BT captures the rights, investors will assume it intends to be even more aggressive on Premier League next time around, and that could signal a seminal change in market dynamics.’
Shares in the group closed at 877.5p on Monday, down 0.5p or 0.1%.
Berenberg Bank drops target price for Tate & Lyle
Berenberg Bank has reduced its target price for Tate & Lyle (TATE.L) following a disappointing first half for the ingredients maker.
Analyst James Targett noted that the second-quarter update was 'far from stellar' with US sales declining around 2% due to weather-related weakness in US beverage sales affecting sweetener sales.
He said the outlook for the second half looks far better, and reiterated his 'buy' stance, but the expectation of 3% growth in full-year earnings per share (EPS) puts the pressure on Tate. 'We reduce our FY 2014 EPS by 2.5% to 58.3p, reflecting lower H1 profits and FX [foreign exchange rates] in H2,' he said.
'Our FY 2015 EPS falls by 3.5% to 62.4p, reflecting the lower base and lower sucralose pricing. We reduce our price target to 900p [was 950p], reflecting our peer multiple (845p), sum of the parts (785p) and DCF (1,070p) fair values.'
Shares in the group closed at 740.5p on Monday, down 4.5p or 0.6%.
Ithaca's new CEO has what it takes, RBC says
RBC Capital Markets has reiterated its 'outperform' recommendation on North Sea oil and gas operator Ithaca Energy (IAE.L) following the appointment of a new chief exec.
Les Thomas has replaced Iain McKendrick, who stepped down for personal reasons, sending the shares down as much as 9% in the wake of the news.
Analyst James Hosie said Thomas has the experience needed to fill McKendrick's shoes: 'Our introductory meeting with Les Thomas provided reassurance that he intendsto build on the good work of his predecessor, continuing with the same NorthSea development strategy and a capital constrained growth model,' he said. Thomas is a former executive at energy services company John Wood Group.
'We believe investors can anticipate a relatively smooth transition in leadership, with continuity in the business strategy.'
Shares in the group closed at 153p on Monday, up 1.5p or 1%.
Jefferies trims target price for Firstgroup
Jefferies has cut its target price for Firstgroup (FGP.L) despite last week's news that the train operator has been awarded a 23-month extension to run services on the line from Paddington to Wales and the West Country.
The lucrative extension was widely regarded as a big win for Firstgroup, but analyst Joe Spooner said it wasn't without risk. 'Ongoing infrastructure work on the line is a risk to future operational performance, although is at least partly offset by the short length of this extension,' he said.
'But, execution has been this group's historic challenge, it remains highly complex and granular (120k employees, 1,300 contracts at First Student alone, pursuing local solutions in UK bus, etc.) and we're still concerned that winning long term rail franchises is key to rebuilding cash flows (risks overbidding).'
His target price falls from 150p to 130p, and he reiterated his 'hold' recommendation.
Shares in the group closed at 123.4p on Monday, down 1.3p or 1%.
'Add' Kenmare Resources, Westhouse says
Westhouse has reiterated its 'add' recommendation on mining firm Kenmare Resources (KMR.L) ahead of next week's trading update, arguing demand for titanium dioxide is set to pick up.
Kenmare operates the Moma Titanium Minerals Mine in Mozambique, which produces the feedstocks used to make titanium dioxide pigment.
'We see increasing indications that the destocking phase of the titanium dioxide (TiO2) feedstock market is bottoming; fundamentals are beginning to point to an improvement in 2014,' analyst Nick Hatch said.
Kenmare has previously disappointed investors as a result of production misses, but the analyst believes the latest update should be reassuring. 'The company is confident that it has overcome these difficulties,' Hatch said.
'If it is correct, then the leverage to mineral sands prices could have a marked positive impact on share price performance as the pigment market recovers and eventually moves into a restocking phase.'
Shares in the group closed at 29p on Monday.