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The Expert View: Chemring, Cobham and Lloyds
A roundup of analysts' commentary on shares, also including Travis Perkins and Aggreko.
Our daily round-up of analyst recommendations and commentary, featuring Chemring, Cobham, Lloyds, Travis Perkins and Aggreko.
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Chemring battered by quadruple whammy
Investec has downgraded Chemring (CHG.L) from 'add' to 'hold' following a profits warning from the maker of military flares and missile decoys.
The company warned its profits will suffer as a result of a quadruple whammy of production problems, the US shutdown, unhelpful changes in the exchange rate and delays to deliveries to the Middle East.
'Chemring’s update is a disappointment, but more widely reflects the extremely difficult conditions in the US market, which are unlikely to be fully resolved any time soon, and the shorter cycle structure of the group,' analyst Chris Dyett said.
'We downgrade FY13E and FY14E materially and reduce our sector price to earnings-based price target to 260p (from 340p). With share price weakness expected today, we move to Hold (from Add).'
Shares in the group closed at 220p on Friday, down 64.4p or 22.6%.
Cantor Fitzgerald stays bearish on Cobham
The same factors that have knocked Chemring for six will make the going tough for defence and security technology specialist Cobham (COB.L), according to Cantor Fitzgerald.
Analyst Andy Chambers attended Cobham capital markets day last week, which highlighted its investment in growth areas such as aircraft satellite communications.
Although the analyst acknowledged that there's plenty of opportunities for growth, he said the backdrop remains fundamentally hostile. 'There was nothing fundamentally new presented in overall perspective and US/defence travails continue to weigh on growth this year and probably next,' he said.
'Rated on 12.9x FY14E price to earnings, the shares look fairly valued at present. Whilst we think management’s view of defence in the medium term is overly bearish, we maintain our HOLD and target price of 280p.'
Shares in the group closed at 280.3p on Friday, down 3.4p or 1.2%.
Shore Capital welcomes Lloyds' Australian exit
The decision by Lloyds Banking Group (LLOY.L) to sell off its Australian interests fits in with the strategy of focusing on its core UK market and beefing up its capital reserves, according to Shore Capital, which has a 'buy' stance on the shares.
The bank has confirmed it's going to sell £5.2 billion worth of Australian motor and equipment finance assets and corporate loans to Westpac Banking Corporation.
'The disposal is expected by management to generate a pre-tax disposal gain of £20 million and to add 20 basis points (£550 million) to the group's 'fully loaded' Basel III core tier 1 ratio,' analyst Gary Greenwood said.
'The assets are said to have generated £80 million of pre-tax profits in the year to the end of December 2012 and, as such, any associated earnings dilution from the disposal is likely to be immaterial in a group context, we think.'
Shares in the group closed at 76p on Friday, up 1.1p or 1.5%.
Liberum Capital ups target price for Travis Perkins
Liberum Capital has increased its target price for builders' merchant Travis Perkins (TPK.L), believing its end markets are starting to pick up.
'Travis’ end markets have picked up since the company last reported (25 July), as can be seen in data from BMF, Grafton and Wolseley,' analyst Charlie Campbell said. 'We are convinced that this will be reflected in the trading update on 17 October.'
Although some investors see the shares as expensive compared with the average level of the past decade, Campbell said this isn't the right comparison. 'We think the price to earnings multiple should not be stuck at the last 10 year average, but should be more similar to the mid 1990s when recovery took off (15-16x).'
The analyst's target price rises from £18.90 to £19, and he reiterated his 'buy' stance.
Shares in the group closed at £16.78 on Friday, up 53p or 3.3%.
City over-rates Aggreko – ‘sell’ say Canaccord Genuity
‘Sell’ shares in Aggreko (AGG.L), say analysts at Canaccord Genuity, pointing to a quartet of pressures on the temporary power rental business.
‘As a result of continued slow conversion of prospects into sales, pricing pressure, currency headwinds and material contracts coming to a conclusion in FY13 we are initiating with forecasts at the bottom end of the consensus range for FY14 & FY15,’ wrote analyst Graham Brown in a research note.
‘Both consensus estimates and the shares have been under pressure since Aggreko cautioned on the conclusion of material (Japanese & military) contracts in 2013, together with tougher conditions in its emerging economy customer base, almost a year ago,’ warned the analyst.
‘The continuation of these issues, plus more recent adverse currency movements, does not appear to be fully factored into consensus.’Canaccord subsequently has a ‘sell’ recommendation on the shares, which the analysts expect to fall to 1237p.
Shares in the group closed at £14.77 on Friday, down 13p or 0.9%.