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The Expert View: BT, Ladbrokes and Provident Financial
by Harry Brooks on Oct 09, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Reckitt Benckiser and Cineworld.
Our daily round-up of analyst recommendations and commentary, featuring BT, Ladbrokes, Provident Financial, Reckitt Benckiser and Cineworld.
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'Buy' BT Group, Goldman Sachs says
BT Group (BT.L) will emerge from the current telecoms tussle as one of the winners, according to Goldman Sachs.
The analyst has a 'buy' recommendation on the shares, which it estimates are trading at a 25% discount to the sector.
'We expect this results season to show initial signs of the impact of BT’s concerted push into TV, spearheaded by its BT Sport content (including English Premier League content),' the analysts said.
'Overall we expect BT’s share take to accelerate in upcoming results, Talk’s to stabilise, Sky’s share gains to continue and VMED’s and ''other'' players’ share loss to accelerate.'
The market is currently underestimating BT's potential cost savings, Goldman Sachs added. 'Company-compiled consensus suggests underlying operating expenses cuts of up to £100 million to 2015. We model £500 million.'
Shares in the group closed at 340.6p on Tuesday, down 6.4p or 1.8%.
Provident Financial: bringing sub-prime into the digital age
Provident Financial (PFG.L) is taking steps to bring the sub-prime mortgage business into the digital age, according to Berenberg Bank, which has a 'hold' recommendation on the shares.
'Management believes there is a large part of the sub-prime market not currently being served by HCC [home-collected credit] and Vanquis [the group's banking arm] as they are not eligible for a revolving credit card but also do not want home credit loans as an alternative,' analyst Pras Jeyanandhan said.
'To address these customers, PFG has developed an online platform that will provide products with similar pricing/duration to the HCC product.'
Jeyanandhan said 2013 has been a mixed bag for the firm so far, but that next year should be better, as HCC customers generally benefit a bit later than most from an upturn in the economy.
Shares in the group closed at £16.14 on Tuesday, down 32p or 1.9%.
Jefferies has downgraded bookies Ladbrokes (LAD.L) from 'buy' to 'hold' as a result of delays to its online operations.
Analyst James Wheatcroft noted that the commitment to paying a flat dividend remains an attraction, but he doesn't have much faith in the promise.
'As we stand today, the company robustly rebuts any talk of a dividend cut (1.3x covered by earnings, barely covered by cash),' he said. 'But after three profit warnings, one does not have much confidence in company guidance.'
Wheatcroft's 'buy' thesis assumed that Ladbrokes' acquisition of gaming software development company Playtech would galvanise its online operations, but the change has yet to materialise.
'Failed acquisitions, sub-scale acquisitions and execution disruption have materially undermined Ladbrokes's competitive position online,' Wheatcroft said.
'Other have fared far better in the growing online market and we worry that Ladbrokes may have missed the boat.'
Shares in the group closed at 169p on Tuesday, down 0.3p or 0.2%.
Liberum drops target price for Reckitt Benckiser
Liberum Capital has reduced its target price for consumer goods and pharmaceuticals business Reckitt Benckiser (RB.L) on concerns that the expiry of its patent on an opioid addiction medication may hit revenues.
The drug in question is buprenorphine, known by RB's brand name of Suboxone. RB's patent on the drug expired last year, opening the doors to generic equivalents.
However, analyst Pablo Zuanic said demand for the drug has slumped since the patent ended, which is bad news for RB, which is continuing to make the generic version. Zuanic cited three possible reasons for patients giving up buprenorphine:
- Dropped out of treatment due to the pullout of the Suboxone tablet and the fact that generics are less effective.
- Others may have dropped out because an increasing number of doctors have decided not to take insurance any more (cumbersome reimbursement process).
- Because some patients are becoming fed up with doctors cycling them through too fast.
The expiry of the patent has also led to fears that inexpensive buprenorphine could become the next big drug epidemic in the US.
The analyst's target price falls from £37 to £35, and he reiterated his 'sell' recommendation.
Shares in the group closed at £42.69 on Tuesday, down 101p or 2.3%.
OFT ruling blow for Cineworld
The Office of Fair Trading's ruling that Cineworld (CINE.L) will have to sell three of its cinemas following its acquisition of Picturehouse is a blow, Peel Hunt has said, but it won't have a big impact on the bottom line.
'We share management’s frustration with the OFT ruling, which appears to ignore the fact that Picturehouse is a very different proposition from a Cineworld multiplex,' analyst Nick Batram said.
'However, the ruling has been made and the impact going forward is likely to be less than 2% negative on earnings per share.'
The mild weather in the UK of late has resulted in weak ticket sales over the past couple of months, but Batram said the long-term prospects remain good.
'There are a significant number of operational improvements coming through, while the pipeline is busier than it has been for years.'
Shares in the group closed at 367.8p on Tuesday, down 1.8p or 0.5%.