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The Expert View: Computacenter, FirstGroup and Asos
by Michelle McGagh on Apr 03, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including IP Group and Workspace.
‘Oversold’ Asos upgraded by Peel Hunt
An ‘overreaction’ to a sales slowdown for retailer Asos (ASC.L) has led to shares being oversold, prompting Peel Hunt to upgrade the stock to a ‘buy’.
Analyst John Stevenson upgraded from ‘hold’ to ‘buy’ and maintained a target price of £69.00 as he sees the overselling as an opportunity. The shares have fallen more than 25% since the company’s second quarter update in mid-March.
He put the fall in earnings down to ‘disruption costs from investment’ rather than a ‘sales miss’.
‘With significant global growth potential remaining and an earnings before interest and tax margin potential that is materially above current performance, we believe the recent sell-off provides a good buying opportunity, noting that zonal pricing and a pick-up in more recent trading levels after a soft February are likely to provide a step up in sales momentum in the third quarter,’ said Stevenson.
Closing Windows to give Computacenter some ‘va-va-voom’
The phasing out of Windows XP software will be good for Computacenter (CCC.L) but Panmure has already factored increased upgrades into its target price.
Analyst George O’Connor retained a ‘buy’ recommendation and a target price of 733p as he expected a good first quarter would uplift the full year outlook and put some ‘va-va-voom’ into the share price.
‘Computacenter should be able to turn in a good first quarter report card,’ said O’Connor. ‘As the XP date draws ever closer and lazybone users will upgrade legacy PC estates, Computacenter’s coffers should fill,’ he said. ‘The expected good performance in supply chain will underline Computacenter’s dominant position in the UK product resale market.’
He added that the company still has ‘issues’ in France and Germany which are holding back performance.
Numis upgrades IP Group on positive 10-year outlook
Venture capital company IP Group (IPO.L) has been upgraded by Numis after raising £100 million new capital in February.
Analyst Charles Weston upgraded the stock from ‘hold’ to ‘buy’ and increased the target price to 273p from 144p.
IP, which aims to identify and commercialise universities’ intellectual property, raised £100 million and ‘now has sufficient capital to continue to increase its investment rate for the next three years’, according to Weston. It also acquired the remaining 80% of Fusion IP last month for £80 million to provide further access to universities’ intellectual property.
‘For 14 years, the company has been able to achieve mid to high-20% internal rate of return on its investments…and we are increasingly confident that high internal rates of return can continue to be achieved,’ said Weston. We extend our assumption for asset returns from 20% for five years to 23% for 10 years.’
Poor weather impacts FirstGroup’s earnings
Bad weather at the end of last year highlighted just how small FirstGroup’s (FGP.L) cash cushion is, according to Jefferies analysts.
Analyst Joe Spooner maintained a ‘hold’ recommendation and a target price of 125p following full year 2014 results that revealed poor weather in the fourth quarter of the group’s financial year impacted earnings. The company’s earnings would have been in line with expectations had it not been for extreme snow which made a £14 million dent in the results.
‘Weather was clearly an unavoidable and unfortunate headwind for FirstGroup,’ said Spooner. ‘Our view is that the group already operates with a tight cash-flow profile and this latest trading period serves as a further reminder to us that the group runs with limited cushion to absorb trading disappointments – whatever the reason.’
Workspace focus on ‘urban regeneration’ to increase value
Real estate investment trust (Reit) Workspace Group (WKP.L) is delivering on its ‘urban regeneration’ strategy by receiving planning permission for a new scheme in Wandsworth, London.
Cantor analyst Sue Munden maintained a ‘buy’ recommendation but placed the target price ‘under review’ as the Reit announced the receipt of planning permission for the second phase of its Wandsworth development. That project will comprise 77 apartments in a 20-storey tower and 15,000 square feet of office space, plus 3,000 square feet of restaurant and retail space.
‘This represents a good example of urban regeneration which is at the core of the WKP strategy for providing appealing office environments for new and growing companies,’ she said. ‘The planning consent should improve the rental prospects for the area and will therefore increase capital values.’