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The Expert View: Bwin, Admiral and ARM
by Michelle McGagh on Jul 16, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Debenhams and Dairy Crest.
The party isn’t over for Bwin
The Amaya/PokerStars deal may be the curse and the cure for troubled online gambling company Bwin.party’s (BPTY).
Peel Hunt analyst Nick Batram retained a ‘hold’ recommendation on the shares and a target price of 113p after a ‘tough’ second quarter for the group, with poker business hit. Shares were trading at 85.7p at yesterday's close.
‘That Bwin continues to find life tough is no surprise. The main question is will management be given much more time to turn it around?’ he said.
Shares in Bwin are down nearly 30% over the last three months, after the company was overtaken as the world’s largest listed online gaming company by Canadian firm Amaya’s acquisition of PokerStars last month.
However, Batram said there were also positives for Bwin to be drawn from the deal.
‘Ironically, the event that caused the recent weakness in the share price, the Amaya/PokerStars deal may also represent the way forward for long-suffering shareholders,’ he said. ‘[The] deal could be the trigger for further industry consolidation and, despite Bwin.party’s woes, it remains a significant industry asset.’
Admiral downgraded after announcing £200 million debt-raising plan
Insurance company Admiral (ADM) has been downgraded after a move to raise £200 million of 10-year debt.
Numis analyst Nick Johnson reduced his recommendation from ‘buy’ to ‘add’ but retained a target price of £17.20 following the debt announcement which he said was ‘a material change in the company’s balance sheet, which had previously been ungeared’. Shares were trading at £15.51 at yesterday's close.
‘Admiral highlights a desire for added financial flexibility and prudence ahead of [EU rules] Solvency II in 2016,’ he said. ‘The company has also initiated a significant marketing investment for its new US price comparison website prompted by encouraging early indications for the business.
‘If earnings temporarily dip as a consequence, the debt funds will therefore give Admiral the resource to both maintain the dividend and also provide additional regulatory capital if conditions are right to grow the insurance business.’
Debenhams upgraded after poor share performance
Debenhams (DEB) has been upgraded after recent share price underperformance and a slight improvement in the short-term outlook.
Investec analyst Kate Calvert upgraded her recommendation from ‘sell’ to ‘hold’ and retained a target price of 62p on the shares, which were trading at 61.8p yesterday. She said that while the short term was looking up for the high street retailer, the medium-term outlook was on shakier ground.
‘Recent share price underperformance post third quarter means the shares are trading less than 3% above our 62p target price,’ she said. ‘We see little downside from here. Short-term news flow is likely to be more positive given the better footfall data and expected non-repeat of last year’s autumn/winter discounting as management has bought more conservatively.
‘We upgrade our recommendation from “sell” to “hold” though we see little potential for medium-term profit recovery given structural pressure and see better value elsewhere in the sector.’
Dairy Crest pull-back means shares are inexpensive
A fall in Dairy Crest (DCG) shares mean they are now looking like good value, despite struggles in the retail environment.
Jefferies analyst Alex Howson retained a ‘buy’ rating and price target of 490p after the company’s first quarter results showed a ‘commendable’ 4% growth across all brands. Shares were trading at 439.4p yesterday.
‘The dairies business has continued to struggle and although we don’t adjust our forecasts overall, a greater contribution to this is now likely to come from accelerated property sales of £10-£15 million (versus £10 million previously guided),’ he said.
‘Having pulled back 20% since March, the shares remain inexpensive on 11.3 times price earnings with a best-in-class 5% yield.’
The trading statement reveals management believes ‘they are on track to meet consensus… but a greater proportion of [profit] will be delivered via property sales than had been previously guided’, added Howson.
Investors are expecting too much of ARM
Expectations of increased royalties for chip maker ARM Holdings (ARM) are too optimistic, according to Liberum analyst Janardan Menon.
Menon retained a ‘sell’ rating and target price of 725p on the stock, which was trading at 838.6p yesterday, despite expecting second quarter results to be in line with forecasts and consensus expectations.
‘However, the market is expecting a sharp acceleration in ARM’s processor royalties in the second half of 2014 which we believe could prove too optimistic,’ he said.
He added that the ‘smartphone mix continues to deteriorate’ and Samsung’s smartphone shipments are ‘weak, while tablet shipments are lacklustre’.
‘A lot depends on the actual sell-through of the iPhone 6 in the second half of the year where expectations are already high,’ said Menon. ‘We therefore believe full-year royalties could disappoint and remain cautious.’