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The Expert View: BSkyB, Premier Foods and Diageo
by Michelle McGagh on Jan 31, 2014 at 05:01
Our daily round-up of analyst recommendations and commentary, also featuring Renishaw and Shell.
Our daily round-up of analyst recommendations and commentary, featuring Shell, BSkyB, Premier Foods, Diageo and Renishaw.
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New Shell boss allays fears after profit warning
A Q4 profit warning for energy behemoth Shell (RDSB.L) has forced its new chief executive to outline the company’s strategy early.
Investec analyst Neill Morton retained his ‘hold’ recommendation on the shares and a target price of £23.00 after a drop in Q4 earnings and full-year earnings, although both were in line with expectations.
The results are the first for new chief executive Ben van Beurden who decided to update investors on the company’s priorities aimed at ‘sharper performance and rigorous capital discipline’.
Morton said: ‘Ideally, Shell’s new CEO would have preferred to present his plans for the company at the strategy update on 13 March but the Q$ profit warning has forced his hand.
‘His comments on ‘change of emphasis’ and ‘improved returns’ are admirable but strike us as a holding statement.’
At the time of writing shares were up 2.61%, or 55p, at £21.80.
ITV tie-up readies BskyB for battle with rivals
BSkyB (BSY.L) has come out fighting against its rivals, detailing a new link up with ITV in its Q2 statement.
Jefferies analyst Jerry Dellis retained a ‘hold’ recommendation and set the target price for the shares at 860p.
The results showed dividend per share was up 9% which ‘underlines management confidence in growth outlook’ said Dellis.
He added that although Sky had stiff competition in BT it was making headway on the broadband front, targeting TalkTalk and Virgin.
Sky announced a four-year deal with ITV to exclusively distribute its new on-demand product ‘ITV On Call’ and another deal to extend Sky’s UK exclusivity on HBO content until 2020.
‘Having spent much of 2013 reacting to BT’s announcements/successes, today is the day when Sky starts to outline its fight back, in our view,’ said Dellis.
BskyB shares were trading up 3.2%, or 27p to 871.5p on Thursday afternoon.
Premier Foods’ target price doubled as bread ‘headache’ cured
A deal to offload a 51% stake in Hovis to a US buyer will help struggling Premier Foods convince investors to take part in a rights issue, without which the company could be rendered ‘worthless’, said analysts.
Societe Generale analysts upgraded the shares to ‘hold’ from ‘sell’ after Premier’s announcement that it is selling a 51% stake in Hovis to US private equity firm The Gores Group in a deal that values the bread business at £87.5 million. ‘Bread has been a constant headache for the company,’ said the SocGen team, who nearly doubled their price target to 150p (from 80p).
The deal will leave Premier ‘focused on seven core grocery brands with strong market positions and relatively high profitability’, they said.
‘The proposed JV transaction should leave Premier with a significantly less volatile consolidated earnings stream going forward, and potentially increase the company’s appeal to existing and potential investors.’
‘This is crucial as we continue to forecast that in the absence of a rescue rights issue, Premier will breach its lending covenants in 2014, which could render the equity worthless.‘The disposal of Bread increases the probability of a successful refinancing in our view.’
Diageo loses its fizz as shares weaken
Drinks giant Diageo (DGE.L) failed to win over analysts with below expectation sales growth in its latest interim results.
Phil Carroll at Shore Capital maintained his ‘hold’ recommendation on the shares and a target price of £19.01 after the group reported organic sales of just 2%, below market expectations of 4%.
‘Diageo remains a high valuation and whilst it would be our preferred play in UK large-cap beverages, the return of risk appetite in the equity markets leaves us feeling that the rating is up with events for the time being,’ said Carroll. ‘We also expect the shares to now be weak in the short-term. This could present an opportunity but we need to assess in more detail the company’s prospects first.’
At the time of writing shares were down 3.98%, or 75p, at £18.35.
Numis upgrades Renishaw after favourable results
Numis has upgraded precision instruments maker Renishaw (RSW.L) from ‘reduce’ to ‘hold’ after bringing its interim numbers in line with expectations.
Anlayst Scott Cagehin placed a target price of £17.00 on the shares, despite a reduction in revenue and profitability. He is buoyed by Renishaw’s outlook for the second half of its financial year with ‘comparators easing’ that means it ‘should continue to trade well, driven by global demand for manufacturing, sophistication and automation’.
Cagehin added: ‘Given the share price reduction since our ‘reduce’ recommendation and evidence of improving trading we now move to a ‘hold’ recommendation.’
At the time of writing shares were up 5.7%, or 104p, to £19.03.