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The Expert View: Betfair, Capita and Fairpoint
by Michelle McGagh on Jun 10, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Great Portland Estates and Future.
Betfair to escape effects of betting tax and regulation
Online gaming company Betfair (BET) is expected to escape any negative effects of a tightening of taxation and regulation around machine betting but benefit from the World Cup.
Jefferies analyst Ian Rennardson reiterated a ‘buy’ recommendation and a target price of £11.75 ahead of full-year 2014 results on Wednesday. Shares closed 15p, of 1.5%, lower at £10.01 yesterday.
Rennardson believed the results would show progress on all fronts. ‘We think Betfair is unaffected by the negative factors surrounding machine tax and regulation affecting the traditional bookmakers,’ he said.
‘Yet the share price performance has been lacklustre year-to-date (-6%). Any machine regulation has no direct relevance to Betfair as it has no retail outlets or gaming machines. The ‘point of consumption’ tax is more relevant, our estimates already reflect the full impact with no mitigation.’
He added: ‘The FIFA World Cup is likely to be positive for the company.’
Upgrade for ‘underestimated’ Capita
Numis has upgraded outsourcing giant Capita Group (CPI) on the back of contract wins and weakness in its main rivals G4S and Serco.
Numis analyst Julian Cater upgraded the stock from ‘hold’ to ‘buy’ and increased the target price from £11.52 to £13.65, representing 21% upside.
Cater also increased his 2014 earnings per shares (EPS) forecast by 2% to 65.1p and 2015 forecast 4% to 71.3p ‘as a result of strong contract win momentum and acquisitions made year-to-date’.
‘We believe the market is underestimating the growth momentum of the business, and that the more explicit focus on return on capital employed should stabilise or improve returns in 2014-16,’ he said.
He added that the well-publicised problems at G4S and Serco will impact their win-rates over the next 12 months ‘and help sustain Capita’s record win-rate’.
‘In the Ministry of Justice’s outsourcing of probation services, for instance, both G4S and Serco have chosen not to bid; Capita is tendering seven contract regions, worth around £1 billion.’
The shares slosed 13p or 1.2% higher at £11.43.
Fairpoint falls as bankruptcy business matures
Shares in Fairpoint (FRP), the debt adviser held by Gervais Williams’ Diverse Income (DIVI) trust, fell 9% yesterday after the company told shareholders at its annual general meeting that its core debt solutions business remained ‘challenging’.
Group trading in first four months of the year was ‘modestly ahead’ of a year ago, the company said, although the integration of two debt management portfolios had helped to diversify the business.
It said the acquisition of Simpson Millar, a legal services business, was expected to complete soon.
Joint house broker Shore Capital put a positive spin on the news. Its analyst Gary Greenwood said: ‘The debt management division is continuing to take advantage of acquisition opportunities and full-year results will benefit from the acquisitions announced earlier in the year.’
Greenwood noted the ‘individual voluntary arrangement’ (IVA) area of the business was struggling but that was ‘expected’ as ‘claims for activity for existing IVA clients reaches maturity’.
‘Overall group performance is said to be modestly ahead of the prior year comparative, in what is traditionally a seasonally quiet period for the company,’ He added: ‘Encouragingly, the statement notes that the Simpson Millar acquisition is expected to complete in the near term, in line with previous management guidance and our current modelling assumptions.’
Liberum upgrades Great Portland Estate to ‘buy’
Liberum has upgraded Great Portland Estate (GPOR) saying the real estate investment trust has an exceptional three years ahead.
Analyst Michael Burt upgraded the stock from ‘hold’ to ‘buy’ and placed a target of 737p on the shares. He believes the ‘London office cycle has reached a benign sweet-spot’ and Great Portland is the best placed to take advantage of it.
‘Resilient occupier demand and restrained supply underpin two more years of double-digit total returns in our forecasts,’ he said. ‘We forecast 33% net asset value growth for Great Portland over three years, and upgrade to ‘buy’…This is the highest amount the London office peers, supported by one of the largest development pipelines.’
Burt added that valuations for Great Portland’s peers ‘appear fair for fading returns and we would wait for a better entry point’.
The shares closed yesterday unchanged at 672.5p. They have gained 12% this year.
Peel Hunt cautious on future for Future
Peel Hunt has downgraded magazine publisher Future (FUTR) from ‘buy’ to ‘hold’ after a 50% fall in its share price this year.
Analyst Malcolm Morgan said the publisher of titles such as Total Film had done a good job in restructuring the business but, as it was still in transition, it was too high risk to be a ‘buy’. He put a 10p target on the shares which firmed just over 1% to 8.85p.
‘We applaud the new management team for the speed and scope of actions – selling cycling and craft [titles] for a good price and restructuring the remaining activities. Debt has been pretty much eliminated and the business shrunk,’ he said.
‘This remains a high risk company accelerating its pace of change. It is too soon in the current transformation process to gauge whether success is sufficiently assured to warrant a ‘buy’.’