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The Expert View: Barclays, Aberdeen and Countrywide
by Michelle McGagh on May 07, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Mothercare and Howden Joinery.
‘Cheap’ Barclays is worth a shot
The ‘relative cheapness’ of Barclays (BARC.L) continues to make it a ‘buy’ for Investec.
Analyst Ian Gordon retained a ‘buy’ recommendation and a target price of 295p on the shares after a first quarter update. Shares in the bank were down 5.1% at 245.3p yesterday.
Barclays reported profit before tax of £1.7 billion, which was in line with Investec predictions but fell slightly short of consensus expectations of £1.8 billion. The commodities arm was ‘even weaker than expected’, down 41% on the first quarter last year, ‘partly reflecting pre-positioning of commodities business rationalisation’.
Gordon said: ‘Ahead of the 8 May strategic update, the investment case still rests on the stock’s relative cheapness. It trades on 0.8x 2015 net asset value (versus RBS on 1x). It is the cheapest UK bank…yet it offers a best-in-sector prospective 2016 dividend yield of 6.6%.’
Howden upgraded as house renovation picks up
Howden Joinery (HWDN.L) has been upgraded after shares slumped in the past month providing investors with a cheap entry point.
Peel Hunt analyst Clyde Lewis upgraded the stock from ‘hold’ to ‘buy’ and increased the target price from 370p to 375p. They were trading up 1.1% at 341.8p yesterday.
‘The double-digit sell off in the share price over the last month has given investors a more attractive entry point for a quality business which looks set to grow nicely as well as return an increasing amount of cash,’ he said.
‘The interim management statement confirmed the business is trading well and is seeing the benefits of increased [demand for renovations] in the housing market as well as expanding its footprint further. We upgrade our earnings per share by 4% and move our target price to 375p and upgrade our recommendation to “buy”.’
Poor results means Aberdeen loses its edge
Aberdeen Asset Management (ADN.L) may have successfully integrated Scottish Widows Investment Partnership (Swip) but it could not avoid poor half-year results.
The group saw profits before tax fall 12% in the six months to March due to struggling performance in emerging markets. This led Numis analyst David McCann to retain a ‘hold’ rating and target price of 450p on the shares. Yesterday shares slumped 2.4% to 435.4p.
‘The stock is not as cheap as it was in the past…when we were really pushing the idea as a buy two to three years ago and the earnings growth outlook is now lower than it was then – even after the additional expected Swip earnings accretion,’ he said.
‘We still expect dividend growth to outpace earnings growth but think the current valuation mostly reflects this. We would prefer Jupiter (JUP.L) if looking to play the rising dividend theme this year.’
Debt problems at Mothercare make it ‘a liability’
News that Mothercare (MTC.L) has been forced to renegotiate its bank loan terms again led Cantor to reduce its target price for the retailer.
Analyst Mike Dennis reiterated his ‘sell’ recommendation and reduced the target price to 114p from 151p. Shares were down 6% at 175.5p yesterday.
At the weekend the Sunday Times reported the group had renegotiated its terms and brought in a specialist team of accountants from PricewaterhouseCoopers. It marks the third time in two years Mothercare has had to renegotiate.
‘Mothercare has a fully drawn £50 million term loan and a £40 million revolving credit facility, including a bank overdraft at rates of between 2.5% and 3.5%,’ said Dennis. ‘At the November interims, Mothercare disclosed its net debt at £48 million and also stated that peak net debt occurred in September at £74.3 million and that the ongoing net debt position was sensitive to second half cash inflows. The fact that the second half has not been good in trading margin and cash terms was not a surprise to us.’
He added that he saw ‘significant downside risk in the shares this year’ and that the balance sheet was ‘rapidly becoming a liability’.
Countrywide buoyed by strong housing market
The strong housing market continues to boost estate agent Countrywide (CWD.L) with sales, letting and mortgages all up.
Jefferies analyst Anthony Codling reiterated a ‘buy’ recommendation and a target price of 750p on the shares, which were trading up 0.9% at 595p yesterday.
The analyst also upgraded his estimates for the group following a ‘robust’ interim management statement, upping profit before tax predictions by 8% for both 2014 and 2015 ‘as we reflect our view of the strength in the UK housing market’.
‘Our upgrades reflect the confident tone of [the] interim management statement,’ said Codling. ‘The new start lettings business is maturing as planned and as Countrywide suspected if you improve mortgage supply Britain will once again get moving.’
He added the shares offered upside of around 27%.