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The Expert View: EasyJet, Aggreko and Carillion
by Harry Brooks on Oct 04, 2013 at 05:01
A roundup of analysts' commentary on shares, also including William Hill and Ted Baker.
Our daily round-up of analyst recommendations and commentary, featuring EasyJet, Aggreko, Carillion, William Hill and Ted Baker.
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Jefferies urges caution on EasyJet
Jefferies has reiterated its 'hold' recommendation on no-frills airline EasyJet (EZJ.L), which increased its profit guidance yesterday, saying the outlook gets tougher next year.
The airline raised its guidance for full-year profits on the back of a strong summer. It now expects pre-tax profit for the 12 months to 30 September to be up at least 48% on last year.
Analyst Mark Irvine-Fortescue said trading would be tougher next year: 'We think management is sensible to urge caution into winter FY14. Starting with October, (post-Olympics boost) unit revenue comparisons are tough in 1Q13 (8.0%) and 2Q13 (9.2%), and benefits from allocated seating are included in the base from December.'
The shares currently trade at seven times consensus 2014 earnings, above the long-term average of six times forward earnings. The analyst said this isn't bad, but there's better value elsewhere: 'On our preferred lease-adjusted enterprise value/invested capital metric EZJ trades on 1.3x CY14E; not overly demanding compared to a cash return on invested capital of circa 13% (among the best in the sector), but we see better value in Ryanair (Buy, €8.30 price target) which trades on 1.1x.'
Shares in the group closed at 13.08p on Thursday, down 6p or 0.5%.
Barclays downgrades Aggreko on EM currency weakness
Barclays has downgraded Aggreko (AGGK.L) from 'overweight' to 'equal weight', warning that the strength of the US dollar relative to emerging market currencies has reduced its competitiveness.
Analyst Paul Checketts estimates that the unhelpful currency movements have increased the cost of Aggreko's temporary power solutions by something like 15%. Based on this he has cut his 2014 earnings per share estimate by 12%, putting him 10% below the Thomson Reuters consensus level.
When the next set of results come out on 28 October Checketts expects the shares to slide in the direction of his £14.40 target price as the tough trading environment becomes apparent.
Longer term, however, the analyst remains upbeat.
'Not only do we believe there is a shortfall of permanent installed capacity in much of the developing world, we suspect a reduction in finance from the developed world will see new power stations delayed, creating a ripe environment for temporary power.'
Shares in the group closed at £14.79 on Thursday, down 29p or 1.9%.
Green Deal delays hit Carillion
Liberum Capital has trimmed its profit forecast for Carillion (CLL.L) amid news that the support services firm is to undertake a £40 million restructure as a result of weaker than expected demand for the government’s flagship Green Deal programme.
The Green Deal programme is supposed to encourage householders and businesses to make energy-saving improvements, but Carillion said uptake continues to be sluggish.
'Consensus has been weakening in the last few weeks to reflect the deteriorating outlook for Green Deal,' the Liberum analysts said. 'We reduce our FY pre-tax profit and earnings per share forecast from £183 million and 37.0p to £172 million and 35.0p.'
The analysts have a 'hold' recommendation, and they said the 2014 price to earnings ratio of eight times isn't demanding for a sector that's moving back in to vogue. 'However, Carillion is late cycle, there is modest earnings risk and there is limited margin recovery,' they concluded.
Shares in the group closed at 310.5p on Thursday, down 5.2p or 1.7%.
William Hill warns on profits
William Hill (WMH.L) has warned that its profits may come up short as a result of the glorious summer weather and the football going against the bookies.
Third-quarter profits missed William Hill's expectations by £20 million, and the statement warned it may not be possible to make up the lost ground.
So far there have been 35% fewer draws in this year's Premier League - which is the result that's most favourable for the bookies. The good weather over the summer also meant more punters chose to shun the betting shops.
'Given the success of William Hill’s online business, the fact that football generally represents a higher percentage of bets placed online/mobile and that gross win margins have to date been higher online and in mobile, it is relatively easy to understand why profits have been hit,' Shore Capital analyst Greg Johnson said.
Nonetheless, he still rates the shares a 'buy': 'With online and mobile continuing to grow strongly, we remain confident in the long term attractions of the William Hill investment case.'
Shares in the group closed at 413p on Thursday, up 1.7p or 0.4%.
Peel Hunt lifts target price for Ted Baker
Peel Hunt has increased its target price for Ted Baker (TED.L) on the back of a strong trading update from the fashion retailer.
First-half profits rose 24.3% to £11.6 million, which includes a £900,000 staff bonus provision, unlike last year when there wasn't one. Retail sales rose 30.2%, and wholesale sales rose 33.4%.
'Retail sales growth in the UK has been stunning, +22.6% yoy, implying like-for-like sales growth of circa 20%,' analyst John Stevenson enthused, reiterating his 'buy' recommendation. 'Indeed, Ted Baker was the only apparel retailer to report strong growth in menswear through the cold, unseasonable cold start to spring/summer.
'Ted remains one of the few long term structural growth stories in the UK consumer sector.'
Shares in the group closed at £18.51 on Thursday, down 69p or 3.6%.