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The Expert View: Barclays, Tesco and SuperGroup
by Harry Brooks on Sep 06, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Intercontinental Hotels Group and Genus.
Our daily round-up of analyst recommendations and commentary, featuring Barclays, Tesco, SuperGroup, Intercontinental Hotels Group and Genus.
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'Sell' Barclays on short-term bounce, Berenberg Bank says
Barclays (BARC.L) is overvalued based on unrealistic expectations for revenues, according to Berenberg Bank, but in the short term it has the potential to outperform its rivals during its rights issue.
Analyst James Chappell reiterated his 'sell' recommendation, arguing that as well as optimistic revenue expectations strategic uncertainty around its adoption of the 'universal banking' model (in which commercial and investment operations are undertaken by the same entity) make the shares a bad bet longer term.
However, history suggests that during a rights issue the shares may rise: 'Since mid 2009, European banks have on average outperformed peers by 3% once their rights have started trading and a further 2% in the 30 days after the rights period ends,' Chappell said.
'We would sell into this expected strength.'
Shares in the group closed at 296p on Thursday, up 6.5p or 2.2%.
Short-term pain, long-term gain for Tesco
Next month's interims from Tesco (TSCO.L) are likely to show further downgrades as a result of weak banking and motor insurance numbers, Shore Capital warns, but strategically the supermarket's on the road to recovery.
In terms of the core UK operations analyst Clive Black expects the fall in sales to be balanced by higher margins. In terms of non-core operations, however, there are grounds for concern: 'There remains considerable pressure, most particularly in Europe where the effective collapse of margin in H2 2012/13A can be expected to dominate H1,' Black said.
'We also pare back our Bank forecast with a weak UK motor insurance market and, whilst discontinued, the USA is not expected to look clever.'
Based on this, he's downgraded his full-year out-turn prediction by about 4.3%. However, in terms of the short-term pessimism, he believes the outlook is brightening.
'Despite this additional disappointment, we believe that the company and the share are set for brighter times. A sustained improvement in the UK economy could particularly benefit the market leader whilst favourable comparatives and management initiatives should have a 2014/15F impact in international markets. The more virtuous FCF [free cashflow] story remains intact, making for a focus on shareholder-friendly initiatives.'
Shares in the group closed at 367p on Thursday, up 1.2p or 0.3%.
SuperGroup's back on track, Cantor Fitzgerald says
Fashion retailer SuperGroup (SPG.L) is beginning to recover lost ground after a disappointing year, according to Cantor Fitzgerald, which has increased its target price on the shares from £13 to £14.
Yesterday's first-quarter update came in above the top end of market expectations, helped by a 50.8% leap in wholesale revenues. Group sales rose 25.7%, beating analyst Freddie George's prediction of a 15.7% rise.
'The company is beginning to recover ''lost ground'' after a disappointing FY13,' George said. 'It has spruced up and strengthened its ranges, which is helping to drive wholesale sales, particularly in Europe, and womenswear now has real momentum. There is also a great opportunity to drive international sales boosted by the announcement of several deals.'
The analyst said the 2014 price to earnings ratio of 20.7x, falling to 18.6x the following year, looks undemanding. He reiterated his 'buy' recommendation.
Shares in the group closed at £12.27 on Thursday, up 68p or 5.9%.
UBS upgrades Intercontinental Hotels Group
UBS has upgraded InterContinental Hotels Group (IHG.L) from 'neutral' to 'buy' following a dip in the shares.
As well as the more attractive valuation, analyst Jarrod Castle said a reversal of a worrying trend in the pipeline of planned new rooms also supported his upgrade.
'One of our main concerns was the decline in the pipeline system size, which with an increase of 6% in H1, reversed the trend we had seen since the peak of 2008,' he noted.
Slowing growth in revenue per available room in China (roughly flat in H1 2013) is a bit of a worry, he said, but that still represented a 6% outperformance against the market.
His target price rises from £20.50 to £22.
Shares in the group closed at £18.75 on Thursday, up 39p or 2.1%.
'Buy' Genus, Liberum Capital urges
Genetics and biotechnology business Genus (GNS.L) ticks all the right strategic boxes, according to Liberum Capital, despite some initially uninspiring metrics.
Genus's 2013 results showed earnings per share (EPS) of 55p, up 3% on a year ago. 'A company trading on 24x price to earnings would normally be expected to report higher EPS growth than 3%,' analyst Sophie Jourdier acknowledged.
'We, however believe Genus’s growth is commendable given the circa £6 million (12%) headwinds in FY13: circa £3 million due to adverse market conditions and circa £3 million due to a build of research and development and other costs in order to drive growth in the next 5-10 years.'
With EPS growth not forecast to hit double digits until 2015, the shares aren't for the impatient, the analyst said, but progress in both Asia and Europe means the firm's well placed to make long-term gains.
Shares in the group closed at £13.36 on Thursday, down 9p or 0.7%.