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The Expert View: British American Tobacco, National Express and HSBC
by Harry Brooks on Oct 25, 2012 at 05:01
Our daily round-up of analyst recommendations and commentary, featuring BSkB and Hargreaves Services.
Our daily round-up of analyst recommendations and commentary, featuring British American Tobacco, National Express, HSBC, BSkyB and Hargreaves Services.
Canaccord warns British American Tobacco shares set to suffer
Eddy Hargreaves, analyst at Canaccord, has warned British American Tobacco (BATS.L) shares are likely to suffer following a trading update that came in below his forecasts.
Over the past nine months cigarette volumes fell 1.8%, a deterioration in the latest quarter from the 0.6% fall reported at the first-half stage and two to three percentage points short of consensus expectations for the quarter.
Although management has retained its forecasts for the full year Hargreaves said there's a distinct lack of detail on what exactly is going to lift sales in the last three months of the year.
'We are leaving our hold recommendation unchanged, but expect the shares to come under pressure in the near term,' the analyst said.
'BAT’s statement confirms the view first indicated by PMI last week that the global cigarette market is growing more slowly.'
Shares in the group closed at £31.56 on Wednesday, down 7.5p or 0.24%.
Shore Capital backs National Express as investors take fright
Karl Burns, analyst at Shore Capital, has reiterated his 'buy' recommendation on bus and train operator National Express (NEX.L) following a solid quarter, choosing to disregard fears about rising fuel costs.
Trading in Spain remains resilient despite tough economic conditions, with intercity bus revenues down 2% and urban revenues up 2% in the year to date. Revenues in the US are up 2% in the year to date, with the figure rising to 14% if acquisitions are included.
In the UK bus revenues are up 3%. Coach revenues suffered following the withdrawal of the government's concessionary scheme for senior citizen passengers, with a million fewer concessionary journeys expected in 2012. However, steep discounting offset this, according to the update.
'We retain our BUY recommendation, highlighting the low valuation, robust cash generation expect, yet in addition revenue and margin growth anticipated from UK bus and US school bus, with an additional 200 basis points and 100 basis points of margin improvement to come on both,' Burns said.
However, the shares were the biggest faller on the FTSE 100 yesterday, tumbling over 12% as investors took a dim view of the company's warning that high fuel prices would curb its progress in the year ahead.
Shares in the group closed at 182.99p on Wednesday, down 23.51p or 11.38%.
Investec reiterates 'hold' on HSBC, prefers Standard Chartered and Barclays
Ian Gordon, analyst at Investec, has reiterated his 'hold' recommendation on HSBC (HSBA.L) ahead of next month's interim management statement, saying Standard Chartered and Barclays are both more attractive investment targets.
Despite being the worst performing UK bank over the past four months, according to Gordon, HSBC's share price has risen over the period, which he said reflected misplaced optimism about the scale and pace of its recovery. The shares went ex-dividend yesterday, which the analyst said would result in them edging closer to his target price of 590p.
The analyst expects the third-quarter interim management statement, due on 5 November, to show pre-tax profit of $4.2 billion versus a consensus estimate of $5.1 billion.
'Our perception is that sell-side revenue estimates remain underpinned by unduly optimistic expectations in terms of the pace of Asian loan growth relative to US run-off, and that margin assumptions may not fully reflect the structural decline from the US run-off and more specifically, the sale of the US credit card business,' he said.
Shares in the group closed at 612.5p on Wednesday, down 0.4p or 0.07%.
Berenberg says 'sell' BSkyB
Sarah Simon, analyst at Berenberg Bank, has reiterated her 'sell' recommendation on British Sky Broadcasting (BSY.L) ahead of next week's first-quarter results, predicting they'll show a disappointing number of new subscribers.
The analyst predicts that over the period 13,000 net TV additions will be made, down from 26,000 in the same period a year ago. The BBC's excellent coverage of the Olympics won't have helped, but it's interesting to note that Virgin Media recently reported one of its best quarters for TV in recent times, she added.
Sales of telecommunications packages, meanwhile, have also been depressed as poor weather has slowed BT's line unbundling work programme.
'We continue to believe that BSkyB faces an increasingly competitive pay environment, coupled with a deterioriation in the telecommunications regulatory backdrop,' she said. 'Coupled with rising prices for content, we believe that this will squeeze profitability in the coming years: we do not think that the current valuation multiples adequately discount this risk.'
Citywire A-rated Paul Casson holds British Sky Broadcasting in his Henderson HF Pan European Alpha fund.
Shares in the group closed at 720.5p on Wednesday.
Westhouse raises target price for Hargreaves Services
Michael Donnelly, analyst at Westhouse, has increased his target price for coal miner Hargreaves Services (HSP.L) ahead of an imminent decision on its Maltby mine in South Yorkshire.
The mine looks set to close after unusually high levels of water, oil and gas were discovered at the site last month. However, Donnelly said investors shouldn't be worried about this.
'Management believes that closing the colliery may, in fact, be cash positive given the amount of kit it expects to sell,' he said.
'We believe that the shares are a buy and that the investment case will be materially derisked post the closure of Maltby, which we expect to be formally announced at the end of this month.'
The analyst's target price rises from 660p to 927p.
Westhouse acts as a market maker for Hargreaves Services.
Shares in the group closed at 732p on Wednesday, down 12.5p or 1.68%.