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The Expert View: Devro, Pearson and Lloyds
by Harry Brooks on Feb 27, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Paragon and Bovis Homes.
Our daily round-up of analyst recommendations and commentary, featuring Devro, Pearson, Lloyds, Paragon and Bovis Homes.
Shore Capital downgrades Devro
The cost of developing new product lines means shares in sausage-skin maker Devro (DVO.L) will struggle to make gains in the near term, according to Shore Capital analyst Darren Shirley, who has downgraded the group from 'buy' to 'hold'.
Yesterday's full-year results showed revenues up 5.9% year-on-year at £241.1 million, and pre-tax profits up 0.8% to £42.2 million, beating Shirley's forecast of £41.8 million.
A final dividend of 5.85p has been proposed, resulting in a total payment for the year of 8.5p, a 6.3% increase year-on-year.
'We believe much interest will focus on the 80 basis point decline in the earnings before interest and taxes margin to 17.9% (18.2% in constant currency), as the group was adversely impacted by rising hide and energy costs through the middle of the year, and also the continuing phased investment and introduction of new manufacturing lines,' Shirley warned.
'With forecasts again under pressure we see limited scope for stock appreciation in the short term and down grade our recommendation.'
Shares in the group closed at 359p on Tuesday, up 4p or 1%.
Restructuring holds key for Pearson's future, Berenberg Bank says
Publishing group Pearson (PSON.L)'s £150 million restructuring effort holds the seeds of long-term growth, according to Berenberg Bank analyst Sarah Simon, who has a 'hold' recommendation on the shares.
The news that Pearson is to ramp up its restructuring plan came alongside Monday's warnings over difficult advertising markets and lower government spending. Fears that these will hit the publishing and schools businesses saw the shares drop 5.6%.
However, Simon is backing the group. 'While these restructuring costs took the market unawares, ultimately we believe that Pearson is a business with solid structural growth in its long-term future,' she said. 'This is not the case for many of its peers, which are seeing rising pressure on organic growth.'
Shares in the group closed at £11.53 on Tuesday, down 18p or 1.5%.
Societe Generale drops Lloyds from 'Premium List'
Societe Generale analyst Paul Jackson has dropped Lloyds (LLOY.L) from his 'Premium List' of preferred stocks following a strong run for the shares.
The shares are now up more than 50% compared with six months ago, and almost 20% compared with three months ago.
On the prospects for the eurozone, The analyst sounded a hopeful note. 'We remain relatively optimistic on the medium-term prospects for European equities despite the risk of a market correction,' he said. 'The short-term undertainties motivate our effort to mix growth, value and financials within our selection of the best ideas.'
With Lloyds having hit Jackson's target price he has opted to retire it from the list. He has also dropped Swiss Re following Thursday's confirmation of its special dividend payment.
Shares in the group closed at 53p on Tuesday, down 1.7p or 3%.
Paragon stands to gain from buy-to-let revival
Bank of America Merrill Lynch analyst Michael Helsby has upgraded mortgage and consumer finance business The Paragon Group of Companies (PARA.L) from 'hold' to 'buy', arguing that changes in the buy-to-let market will propel the company.
'We think the basis is changing for Paragon,' Helsby said. 'Paragon’s new business options within the buy-to-let market are increasing dramatically. We would expect this to feed through into more competitive pricing and into volume growth.
'With the prospect of a banking licence now likely in 2013 we think it is likely that Paragon can restart its organic consumer finance growth.' Helsby has a target price for Paragon of 385p.
Shares in the group closed at 310p on Tuesday, up 0.8p or 0.3%.
Citi downgrades Bovis after strong run
It's time to pause for breath on Bovis Homes Group (BVS.L) following a strong run for the shares, according to Citi Research analyst Aynsley Lammin.
The shares have gained over 42% since July 2012, Lammin noted, with improving margins and volumes cheering the mood. Preliminary results a couple of weeks ago showed pre-tax profits of £54 million, £1 million ahead of the analyst's projection.
'However, given the recent run in the share price which is now closer to our price target of 710p (unchanged) and a valuation of 1.1 times price to net asset value we would not be surprised to see the shares pause in the near term,' Lammin said.
Shares in the group closed at 645.5p on Tuesday, down 14.5p or 2.2%.