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The Expert View: Barratt Developments and Dunelm, Capita
by Harry Brooks on Oct 23, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Cineworld and Shanks.
Our daily round-up of analyst recommendations and commentary, featuring Barratt Developments, Dunelm, Capita, Cineworld and Shanks.
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Barratt Developments has further to go, Panmure Gordon says
Panmure Gordon has increased its target price for homebuilder Barratt Developments (BDEV.L), saying the shares still have further to go.
'We made Barratt Developments our ‘High Conviction’ Large Cap Buy just over two weeks ago and since then the shares have risen by +15%,' analyst Mark Hughes said.
'So where will the share price go from here? In our opinion, it will continue to rise.' Hughes said the autumn selling season has got off to a good start, and additional government stimulus efforts further support his bullish stance.
Among his arguments for owning the stock, Hughes cited its liquidity, high London weighting, balance sheet strength and the prospect of a special dividend.
The analyst lifted his target price from 352p to 381p.
Shares in the group closed at 339.6p on Tuesday, down 7.4p or 2.1%.
Dunelm's set for an upturn, Cantor argues
A spell of share price underperformance from home furnishings group Dunelm (DNLM.L) should soon come to an end, according to Cantor Fitzgerald.
The shares have lagged the FTSE All Share index by almost 20% since lacklustre first-quarter figures announced at the beginning of October.
However, Freddie George said things should soon start to pick up. 'Dunelm, in our view, will be seeing similar trends to the John Lewis’ ''Home only'' stores,' he said.
'The JL Home stores saw a decline of c.12% in the first three weeks of July, similar to Dunelm, but have encouragingly seen a pick-up in sales in these stores fromthe beginning of September, most notably in the last fortnight.'
George has a target price of £10.20 on the shares.
Shares in the group closed at 898.1p on Tuesday, up 5.6p or 0.6%.
Capita faces margin squeeze
Outsourcing giant Capita (CPI.L) will see its margins squeezed further as an increasing number of competitors add 'off the shelf' services to the marketplace, according to Shore Capital, which has a 'sell' recommendation on the shares.
Later this month Capita will release its third-quarter update. Shore Capital's Robin Speakman said the recent newsflow has been fairly light, with the Smart Meter contract £400 million MoJ electronic monitoring deal the only high-impact wins. Nonetheless, a good number of smaller wins means revenues look set to meet expectations.
However, Speakman said the bigger concern is margins. 'The outsourcers face lower barriers to entry than in the past, in our view, with the availability of ''off the shelf'' solutions meaning that their offer relies on sweating economies of scale for clients,' he said.
'We believe that double-digit margins and high rates of return on capital are much harder to justify to clients now and in the future on this basis.'
Shares in the group closed at 972.8p on Tuesday, down 8.2p or 0.8%.
'Buy' Cineworld, Investec says
Investec has reiterated its 'buy' recommendation on Cineworld (CINE.L), saying its recent acquisition of the Picturehouse chain promises operational efficiency gains.
The firm's latest results suggest strong trading in the first half of the year has continued into the third quarter, helped by the easier comparison with the Olympics keeping punters away from the big screen last year.
The film slate for the fourth quarter looks strong - with Thor, The Hunger Games and The Hobbit all set to be crowd pleasers - although these will be up against last year's box office hit Skyfall when it comes to the comparative revenues.
'Valuation - shares remain attractive for mid-term Cineworld/Picturehouse unit expansion plus operational efficiency upside,' the analysts said.
Shares in the group closed at 399p on Tuesday, up 10p or 2.6%.
Liberum initiates Shanks with 'buy'
Liberum Capital has initiated Shanks (SKS.L) with a 'buy' recommendation, arguing the waste management firm is near poised for a double-digit earnings recovery.
Shanks disposed of its loss-making solid industrial waste operations in a £9.5 million deal with Biffa last week. Liberum's David Brockton said the move was a good one.
'The recent divestment of UK solid waste removes sub-scale loss-making activity,' he said. 'As returns improve following investment in Organics, Hazardous Waste and UK Municipal, we forecast a three-year earnings per share compound annual growth rate of 16%. Self-help, allied with potential for European recovery, prompts us to initiate with a BUY rating and 125p price target.'
Shares in the group closed at 103.5p on Tuesday, up 3p or 3%.