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The Expert View: BT, Emis Group and ABF
by Harry Brooks on Feb 05, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, including Antofagasta and Beazley.
Our daily round-up of analyst recommendations and commentary, featuring BT, Emis Group, ABF, Antofagasta and Beazley.
Deutsche Bank lifts target price for BT
A solid trading update has spurred Deutsche Bank analyst David Wright to increase his target for BT Group (BT.L), but toughening competition and the UK's gloomy economic outlook remain concerns for investors.
Third-quarter revenues of £4.5 billion were 0.6% ahead of Wright's forecast, and pre-tax profits of £675 million also beat his estimate.
'Upside/downside risks revolve around the economy and competition,' the analyst said. 'Recently the UK competitive landscape has been relatively benign but competition may readily escalate over BT's push into TV and BT's competitors (esp. VMED) will resist losing share to BT’s high speed Infinity product.
'The weak UK economy remains a further source of volatility given the cyclical exposure of BT’s Global Services growth unit.' Wright's target price rises 3% to 277p, and he reiterated his 'hold' recommendation.
Shares in the group closed at 265p on Monday, up 0.4p or 0.2%.
Emis Group loses its CEO
The surprise departure of Emis Group (EMIS.L)'s long-serving CEO just two weeks after a profit warning is bound to dent investors' confidence in the company, Canaccord analyst Jonathan Imlah has warned.
Sean Riddell is to leave the company to focus on family commitments after more than 23 years at the medical software firm. Riddell will remain on the board as a non-executive director. 'After such long service, it is somewhat mystifying why he is leaving with such little notice and without a formal succession plan in place,' Imlah said.
Confidence in the group took a knock two weeks ago when its pre-close update came in below expectations, and today's news again saw the shares head south. 'Today’s announcement will doubtless set tongues wagging about any other potential issues within the company,' the analyst said. He retains a 'hold' recommendation, but his target price falls 5% to 690p.
Shares in the group closed at 693p on Monday, down 57p or 7.6%.
Shore Capital downgrades ABF to 'hold'
The rise in the value of Associated British Foods (ABF.L) shares has run its course for now, according to Shore Capital analyst Darren Shirley, and he's downgraded the group from 'buy' to 'hold'.
The shares have risen 68% since Shirley upgraded the company to 'buy' back in August last year, based on improving results from its sugar division and the return to robust revenue and profits growth from Primark.
'ABF more than delivered on our operational expectations through 2011/12A, delivering a 62% increase in sugar profitability to £510 million (from £315 million in 2010/11F) and 15% growth in Primark profitability to £356 million (from £309 million),' the analyst noted.
However, according to Shirley's analysis the shares are approaching a price-to-earnings ratio of 26x. 'Given the multiple currently being applied to Primark, we see more limited scope for further ratings expansion for the division or group,' he said.
Shares in the group closed at £17.55 on Monday, down 10.4p or 0.6%.
Surprise dividend in store for Antofagasta investors?
Nomura analyst Patrick Jones has trimmed his target price for Chile-based copper miner Antofagasta (ANTO.L) based on expected cost inflation, but he said the possibility of a surprise dividend could offer a silver lining.
Last week's trading update included a cost estimate for the coming year that was higher than analysts had previously expected, and based on this Jones has cut his target price from £14 to £12.50. However, he said that this means the majority of bad news for the group is probably out of the way now.
News that the Antucoya project has been suspended will boost near-term free cash flow, Jones added, raising the possibility of a dividend surprise over the next year.
'We estimate that if ANTO were comfortable re-levering to 0.5x 2013 net cash/earnings, it could pay out about 125% of 2012 earnings per share, giving a 8.5% dividend yield,' he said.
Shares in the group closed at £11.27 on Monday, down 31.9p or 2.8%.
Beazley's a 'buy', Berenberg Bank says
Berenberg Bank has initiated coverage of insurance businesses Beazley (BEZ.L) with a 'buy' rating and a price target of 217p.
Analyst Tom Carstairs said its consistent returns make it a sensible investment. 'Beazley has a proven track record of delivering impressive returns across the cycle as well as demonstrating the lowest volatility of earnings of its Lloyd’s peers in the past six years,' he said.
'It is trading at a small discount to its Lloyd’s peers, with the exception of Catlin, while its track record merits a premium rating.' Of the the Lloyd’s companies Berenberg Bank covers Beazley has generated the highest return on equity over the past six years, he added.
'The share is supported by a 2013E dividend yield of 5% with the potential for the additional boost from the announcement of a sizeable special dividend at the FY 2012 results,' he added.
Shares in the group closed at 187p on Monday, up 0.7p or 0.4%.