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The Expert View: Dixons, Associated British Foods, ASOS
on Dec 18, 2013 at 05:00
A round-up of analysts’ commentary on shares, also including Experian and Babcock International.
Our daily round-up of analyst recommendations and commentary, featuring Dixons, Associated British Foods, ASOS, Experian and Babcock International.
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Jefferies has cut its target price for credit rating business Experian (EXPN.L) from £12.00 to £10.90, having cut the shares from 'buy' to 'hold' last month.
Analyst Kean Marden had concerns about Experian’s acquisition of Passport Health Communications which it bought to expand its US position.
‘We downgraded from buy to hold last month as we felt the route to shareholder value creation from recent acquisition was uncertain,’ he said. ‘The in-depth analysis…note supports this conclusion.’
He predicted Experian would not be able to achieve a 10% post-tax return on investment in the next five years and said the acquisition would need to accelerate revenue growth to 30% which is three times higher than the Passport Health Communications has achieved between 2010 and 2013.
Shares ended the day down 0.28%, or 3p, at £10.67.
Consolidation in the UK and Nordic markets makes electrical retailer Dixons (DXNS.L) ‘the last remaining specialist with clear market leadership’, according to Investec.
Analysts retained their ‘buy’ rating but upgraded their target price from 60p to 62p on strong half year results which say profits before tax hit £30.2 million, above the estimate set by Investec.
‘Dixons is more than a ‘tab-tastic’ Christmas play,’ said analyst Kate Calvert. ‘It is capable of delivering double-digit growth helped by UK restructuring and investing efficiencies into price and service.’
The increase in growth will be helped by reducing the UK portfolio from just over 500 stores to between 380 and 400 and ‘exchange of best practise, developing closer supplier relationship and investing efficiencies into price and service to differentiate itself from others’, said Calvert.
She also expects the retailer to be able to refinance expensive debt in 2015.Despite Investec's upbeat outlook, shares closed down 5%, or 2.5p, on Tuesday at 48.7p.
The opening of Primark in France has led Shore Capital to reiterate its ‘hold’ rating for parent company Associated British Foods (ABF.L) .
Analyst Clive Black said the discount retailer continued to be a success story for the ABF conglomerate and set a target price of £23.05.
‘[Primark] management has the ‘nice’ problem of needing to prioritise its opportunities,’ said Black.
‘Thankfully Primark’s management is highly capable, experienced and talented. More to the point, in ABF it has a parent that provides substantial wise counsel and capital to guide and support development respectively.’
Black said the market ‘currently supports and appreciated the virtues of ABF with an attractive stock rating’ but he would not add to his position.
‘Primark has plenty of fuel in the tank to sustain its part in the ABF story and on current stock multiples supports our HOLD stance on the group’s shares.’
Shares closed down yesterday by just 0.09%, or 2p, at £23.00.
Panmure Gordon has downgraded its long-standing ‘buy’ recommendation for online fashion retailer ASOS (ASOS.L) to a ‘hold’.
Analyst Simon French said shares in the company have risen 124% year-to-date and are trading at all-time highs, but a slight reduction in sales growth assumptions mean the shares are unlikely to move much higher.
‘Furthermore we think the group’s share price trajectory for 2014 will be determined by its Chinese operation where it is too early to judge the potential success,’ he said. ‘We therefore downgrade our long-standing Buy recommendation to Hold, target price £61.26 from £59.50.’
ASOS also has additional competition to consider as the preference for using mobiles to buy online means smaller retailers with a route to customers are ‘supported by an ever present voice on social media, thus reducing the influence of larger brands’.
The negative reaction from Panmure Gordon had almost no impact on shares yesterday, closing 0.08% down, or 4.8p, at £60.14.
A cyber security acquisition for Babcock International (BAB.L) will allow the engineering support services firm to cross-sell to its existing clients.
Christopher Bamberry, analyst at Peel Hunt, said the £32 million purchase price for ContextIS, an independent technical cyber security consultancy, ‘looks full but will enable Babcock to cross-sell ContextIS’s services into Babcock’s existing client base, which has an increasing need to protect its information systems’.
Bamberry retained his ‘hold’ recommendation and placed a target price of £12.95 on the shares.
‘In the year ended May 2013 ContextIS generated revenue of £10 million and delivered a low-teens margin…we assume a 13.5% margin, 2013 operating profit would be £1.35 million. Given the immaterial nature of the acquisition, we are not changing our forecasts.’
Share were down marginally 0.62%, or 8p, yesterday at £12.77.