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The Expert View: Berkeley Group, Xaar & Weir
by Michelle McGagh on Jun 19, 2014 at 05:01
A roundup of the best analyst comments on shares, including WM Morrison and Sthree.
Berkeley Group ‘too good to miss’ after sell-off, says Peel Hunt
Peel Hunt has upgraded Berkeley Group (BKGH) after a sell-off in the shares in the house builder.
Analyst Clyde Lewis promoted the stock from ‘hold’ to ‘buy’ with a target price of £26.80 claiming the opportunity was ‘too good to miss’.
Berkeley Group, along with the rest of the housing sector, has been hit hard by fears the housing market – particularly in London – is overheating but Rand said this was an ‘over-reaction’ and Berkeley’s ‘income, visibility, quality and conservative nature are being under-priced’.
‘Full-year results confirmed the strength of the market and the quality of the underlying business,’ he said. ‘The sell-off in the shares over the last few months has meant that Berkeley now looks set to yield over 6% per annum for the next four to five years.’
He added that the timing of the payments meant the next 15 months ‘should deliver a c.12% yield’ and on top of this the land bank is set to deliver c.£4.5 billion of gross margin and sales of c.£2.3 billion.
The shares yesterday closed 29p or 1.3% lower at £22.31. They have fallen 16% this year.
Investec cuts Xaar as shares continue to fall
The 24% slump in Xaar (XAR) shares on Tuesday following a profits warning has led Investec to downgrade its rating of the ink-jet printer maker and slash its share price target.
Analyst Thomas Rands reduced the stock from ‘buy’ to ‘hold’ and cut his target price from 960p to 560p. Yesterday the shares slid a further 31p or 5.9% to 505.5p. They have fallen 55% this year.
While Rand said the profit warning earlier in the week ‘was not entirely unexpected given the difficulties in repeating the strong outturn in full year 2013’, it was disappointing.
‘The quantum of the underlying downgrade is greater than we feared due to increased pricing pressure and slower adoption of new print-heads,’ he said. ‘We take a more conservative stance than management guidance due to low visibility and the significant H2 profit weighting, leading us to cut full-year 2014 adjusted earnings per share by 17%.’
He added the lowered target price reflects not just reduced earnings per share but a recent re-rating of the UK peer group. ‘Risks include further pricing pressure, slower-than-expected conversion of the Chinese ceramic tile market and slower take-up of new print-heads into ceramics and labels,’ said Rands.
Jefferies: oil is well at Weir
Engineering giant Weir Group (WEIR) encouraged analysts with its ‘confident tone’ at a presentation updating them on the company’s oil and gas division.
In a flash note after the event Jefferies analyst Andy Douglas retained his ‘hold’ rating on the shares which gained 21p, or 0.8%, to £26.30. This is some way past his previous target price of £23.35.
He said the division had ‘come a long way’ in the past seven years.
‘Weir’s oil and gas focused capital markets day had a very confident tone,’ he said. ‘This was partly in respect of the underlying markets, but also in respect of how the division, and the businesses within the division, are positioned and benefiting from self-help/ internal actions.’
Douglas said management was ‘positioning the group for sustained profitable growth’ and ‘growing ahead of the underlying markets and with good margins and return on capital employed’.
Shore Capital awaits impact of Morrisons’ job losses
A tough period of trading for supermarket WM Morrison (MRW) has been capped with a review of store operations that will lead to 2,600 managers losing their jobs.
Shore Capital analyst Clive Black retained a recommendation of ‘sell’ as the shares slipped 1.7p or 0.9% to 190.8p.
The supermarket group, which has faced intense pressure from discounters Lidl and Aldi, claimed the reorganisation would lead to an improvement in customer service. Black said ‘we will see whether this is the case and also whether morale and standards can be maintained through what is a demonstrably challenging and difficult time for all concerned’.
‘The announcement follows a demonstrably and sustainably tough period of trading for Morrisons, exemplified by like-for-like sales that fell by 7.1% in Q1 2015,’ said Black. ‘In light of the weak trade management re-visited and changed its trading strategy in spring 2014, with a view to becoming a leaner and more price value orientated grocer, a direction that we welcome. Hence the impact of the store labour changes also fits within our current expectations for the group’s cost base.’
Liberum: keep buying SThree
Specialist recruitment company SThree (STHR) plans to triple profits over the next five years, according to Liberum analyst David Brockton.
Brockton reiterated his ‘buy’ recommendation and target price of 475p following a presentation to analysts and investors by the company. SThree shares added 5.75p or 1.5% to close yesterday at 387p.
He said the profit increase would be ‘driven largely by market share gain in newer sectors rather than just cyclical recovery’ and in a best case scenario profits could increase five-fold rather than triple.
‘The US, energy and life sciences sectors are key to achieving this target, where prior investment in processes is now driving strong growth in each of these verticals,’ he said. ‘The event reaffirmed SThree’s significant potential for growth as it builds out its STEM (science, technology, engineering and maths) specialist model globally.’