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The Expert View: Bovis Homes, Mitie and DMGT
by Michelle McGagh on May 20, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Babcock and Shaftesbury.
Bovis shares ‘just too cheap to ignore’
Homebuilder Bovis Homes (BVS) is ‘too cheap to ignore’, according to analysts at Deutsche Bank. Analyst Glynis Johnson reiterated her ‘buy’ rating and target price of £10.42 after a robust trading statement from the company that ‘reiterated its assertive land buying’. Shares yesterday rose 5p, or 0.7%, to 737.5p.
‘Through the coming 18 months as Bovis continues to demonstrate the increasing benefit of its growth strategy: the pull through of new land delivering a strong improvement in operating margins, volumes and selling price, we see the stock gaining traction,’ she said.
Although Johnson said the trading statement would do ‘little to drive consensus’ the shares were ‘just too cheap to ignore’.
She added that as house building costs were set for the remainder of the year ‘any further rise in house prices we believe should be better captured through the Bovis profit and loss’.
Mitie trading at a discount but still a ‘sell’ for Peel Hunt
Outsourcing and energy services company Mitie (MTO) is trading at a discount to the FTSE 250 but until it can deliver ‘cleaner numbers’, Peel Hunt analysts are selling.
Analyst Christopher Bamberry retained a ‘sell’ recommendation and target price of 290p on the shares despite full year 2014 preliminary results in line with expectations. Profits before tax were up 4%, while net debt figures were better than expected. Shares were up 7.3p, or 2.4%, at 318.3p yesterday.
‘Mitie continues to reposition the group to focus on its higher-growth and higher-margin sectors and the process should largely complete by the end of 2015,’ he said. ‘Year-end net debt was better than expected and the shares have been weak recently; therefore they may rally.
‘However, we remain wary of investing in Mitie given the history, and would like to see some cleaner numbers. Therefore, despite the shares trading on a discount to the FTSE 250, we retain our “sell” recommendation.’
Zoopla IPO rumours boost Daily Mail
Speculation that property website Zoopla is to float is good news for majority shareholder Daily Mail General Trust (DMGT).
Liberum analyst Ian Whittaker reiterated his ‘buy’ recommendation and target price of £11.55 as it is reported that Zoopla will announce its IPO on Thursday, the same day as the DMGT’s first half results. DMGT has a 52.5% stake in Zoopla.
‘[Zoopla] valuation of £1 billion would value DMGT’s stake at £525 million, slightly below our £575 million estimates but still a considerable sum,’ said Whittaker. ‘We expect DMGT to sell down some, but not all of its stake, thus keeping some exposure if the price rises. Ex-Zoopla valuation looks even more compelling.’ Shares were down 9.5p, or 1.2%, at 787p yesterday.
Whittaker added that proceeds from a sell-off in its Zoopla stake make up ‘some form of capital return, which we do not think will be excessive but could help support the share price which has been lacklustre recently’.
Babcock prospects increasing, says Jefferies
Jefferies analysts are predicting plenty of opportunities for engineering support services company Babcock (BAB) over ‘the next few years’.
Analyst Kean Marden reiterated a ‘buy’ rating and target price of £16.75 on the shares after preliminary results were in line with expectations. Shares were down 10p, or 0.8%, at £11.78 yesterday.
He said that while estimates were unlikely to change on the back of the preliminary results and the benefits of recent contract wins are unknown the company has shown from some unsuccessful bids it has the ‘ability to replenish’ its order book, which ‘provides confidence’.
‘Although the bid pipeline and prospects list continues to indicate an elevated opportunity set for Babcock over the next few years, consensus earnings per share estimates are unlikely to change,’ said Marden. ‘We reiterate our “buy” rating.’
West End investment pays off for Shaftesbury
The London portfolio of real estate investment trust (Reit) Shaftesbury (SHB) is benefiting from tourist footfall and a buoyant economy.
In its 2014 first-half results Shaftesbury reported a rise of 8.6% in property income to £39 million after raising £152 million through a share placing and investment of £103 million in two West End properties.
Cantor analyst Sue Munden retained a ‘buy’ recommendation and target price of 700p. Shares were down 8p, or 1.2%, at 660p yesterday.
‘The good results follow a continued buoyant trading environment as London’s West End attracts strong footfall from tourists and Londoners,’ she said. ‘The outlook remains strong for this group. Management points out that the better UK economic prospects are enticing even more visitors to the West End, improving the prosperity of Shaftesbury’s tenants and maintaining strong demand for shops and restaurants. The results look to be in line with our full year expectations.’