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The Expert View: Bellway, Greggs and Rotork
by Harry Brooks on Oct 10, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Kentz and Marks & Spencer.
Our daily round-up of analyst recommendations and commentary, featuring Bellway, Greggs, Rotork, Kentz and Marks & Spencer.
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Panmure Gordon upgrades 'too cheap' Bellway
Panmure Gordon has upgraded homebuilder Bellway (BWY.L) from 'hold' to 'buy' following a decline in the shares over the past month.
Analyst Mark Hughes noted that the shares have dropped 17.5% from their high in August. 'Whilst we said to the market that we believed all housebuilders would lose ground over the quiet summer period, at £12.67 we believe the shares now represent good value,' he said.
The shares are now trading on 1.1x the analyst's estimated 2014 net asset value for Bellway. 'In our opinion this is now too cheap,' Hughes said, 'particularly given the increases in dividend per share that will be delivered (on our forecasts) over the next three years.'
Shares in the group closed at £13.20 on Wednesday, up 50p or 3.9%.
Greggs still isn't tempting, Canaccord says
Canaccord has reiterated its 'sell' recommendation on bakery chain Greggs (GRG.L) despite a better than forecast trading update.
Like-for-like sales dropped 0.5% year-on-year in the third quarter, a much better performance than the 2.9% decline recorded in the first half. Management said the cooler weather helped shift more baked goods, and the introduction of new lines such as pizzas also helped.
Nonetheless, analyst Wayne Brown remains pessimistic: 'Whilst the improvement in Q3 trading is a net positive, the investment case remains unchanged,' he said.
Greggs plans to turn the business around by repositioning to capture the 'food on the go' market, but the analyst said this investment would continue to weigh on profits.
'With an increasing focus on returns on capital and considering profits are forecast to fall by a 7% compound annual growth rate 2012-2015E we think a material improvement in cash flow return on assets is required to return us to a more positive stance.'
Shares in the group closed at 438.4p on Wednesday, up 11.1p or 2.6%.
Barclays upgrades Rotork to 'overweight'
Barclays has upgraded Rotork (ROR.L) from 'equal weight' to 'overweight', arguing the engineering firm is one of the best in the sector, with attractively priced shares to boot.
'Rotork has delivered average organic sales growth of 11% over the last ten years compared to the sector at just 4%,' analyst Nick Webster said. 'It is an asset-light, highly cash-generative business, and cash conversion has averaged 92% over the same period.'
Although emerging markets are decidedly out of favour among investors at the moment, the analyst said that longer term Rotork's exposure in this part of the market would prove a 'major positive'.
Webster values the shares at 24x forecast 2014 earnings per share (up from 22x), giving a target price of £33.15.
Shares in the group closed at £26.97 on Wednesday, down 3p or 0.1%.
Liberum eyes buy window for Kentz
Liberum Capital has upgraded Kentz (KENZ.L) from 'hold' to 'buy', saying the dip in the shares following the collapse of Amec's approach for the oil and gas engineering firm represents an oppotunity for investors.
Amec pulled out of takeover talks last month after Kentz rejected its £700 million offer, saying the 580p per share 'undervalued the business and its future prospects'.
Analyst Andrew Whittock said the subsequent decline in the shares means they're now cheaper than the UK construction sector, which he called 'unwarranted'.
'We believe Kentz’ competitive position in international energy sectors, strong client relationships, ongoing contract wins and the prospect of an earnings enhancing acquisition mean the shares deserve to be more highly rated,' he said.
'In our view, the shares have come back too far and we upgrade our recommendation from 'hold' to 'buy'.'
Shares in the group closed at 493p on Wednesday, up 12.7p or 2.6%.
More clothing woes ahead for M&S, Cantor predicts
Cantor Fitzgerald has reiterated its 'sell' recommendation on Marks & Spencer (MKS.L) ahead of next month's interims, saying clothing sales will again be a source of pain for the business.
Shares in the group fell earlier this week after downgrades by Credit Suisse and Bernstein. Yesterday they clawed back some ground, closing 4.9p or 1.1% higher at 468.7p.
Nevertheless, Cantor analyst Freddie George predicts pre-tax profits will fall 11% to £265 million compared with the current consensus of between £235 million and £280 million.
He expects like-for-like general merchandise sales to fall 1.5%, not helped by mild weather last month.
'Although we believe the company is adopting the right strategy to revitalise its womenswear category and the autumn/winter ranges look better we continue to have a number of concerns,' the analyst said.
'We are retaining our 'sell' recommendation on the stock, which has declined by over 5% after the downgrades, and our target price of 445p.'