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The Expert View: EasyJet, Balfour Beatty and Faroe Petroleum
by Harry Brooks on Sep 04, 2013 at 07:01
A roundup of some of the best analyst commentary on shares, also including Whitbread and Alumasc.
Our daily round-up of analyst recommendations and commentary, featuring EasyJet, Balfour Beatty, Faroe Petroleum, Whitbread and Alumasc.
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EasyJet's got further to go, Morgan Stanley says
No-frills airline EasyJet (EZJ.L) looks set to beat consensus estimates when it releases its pre-close results in a month's time, according to Morgan Stanley, which has a 'buy' recommendation on the shares.
The consensus estimate for pre-tax profits stands at £462 million, but analyst Penelope Butcher is pencilling in £473 million, citing a relatively undisrupted summer weather-wise and an improving UK economic outlook.
Even though the shares are up 70% in the year to date, Butcher believes there's still an investment opportunity.
'We expect continued earnings momentum at EZJ driven by sustained benign competitor capacity. We see +0.5% industry growth for the winter as stableon current trends,' she said.
Butcher's target price rises from £14.20 to £18.
Shares in the group closed at £12.80 on Tuesday, down 4p or 0.3%.
'Buy' window for Balfour Beatty, Berenberg Bank says
Disappointing first-half results from Balfour Beatty (BALF.L) have led the shares to be oversold, according to Berenberg Bank, which still rates the shares a 'buy'.
The update cited a 'very challenging' trading environment and a downward trend in the Australian professional services market, leading analyst Chris Moore to trim his 2013 earnings per share estimate by 5%.
However, the balance sheet is in decent shape and the shares have fallen too far, he said.
'Balfour trades on 9.4x 2014 earnings per share, a 6% discount to its historical average (since 2000) and a 22% discount to the European contractor sector,' Moore said.
'While there is some downside risk to H2 consensus forecasts, we think the stock looks too cheap, particularly given the potential for margin and end market recovery.'
Shares in the group closed at 258p on Tuesday, up 8p or 3%.
Canaccord upgrades Faroe Petroleum to 'buy'
Canaccord has upgraded Faroe Petroleum (FPM.L) from 'hold' to 'buy' ahead of a major drilling campaign.
The coming six months will see six wells drilled, which analyst Charlie Sharp values at 35p per share risked or 122p per share unrisked.
'Our previous target price of 128p/share was based only on our core value (producing and near-term development assets with financial adjustment), as we did not anticipate any market value for the appraisal and exploration upside,' Sharp said.
'Now, at least, the drilling timetable is firmer and imminent, and it is the most compelling programme the company has had for some time with the realistic potential to shift the company’s resource base and value.'
Shares in the group closed at 129.3p on Tuesday, down 1.5p or 1.2%.
Whitbread's worth the money, Barclays says
Hotel and restaurant operator Whitbread (WTB.L) is Barclays' top pick in the leisure sector, with the analysts saying the shares are much cheaper than they first appear.
Trading at 16.2x 2014 estimated earnings the shares don't look cheap compared with the historical average of about 14.5x, analyst Vicki Lee acknowledged. However, she said there are two key reasons why the comparison is misleading.
First off, she said company has changed in recent years: 'The historical average reflects a very different company with many business lines that were far less attractive than Costa and Premier Inn. Today the mix of earnings is 25% Costa, 75% hotels and restaurants with both businesses seeing structural double-digit earnings growth.'
Second, she said earnings have the potential to rise rapidly: 'We project a three-year earnings per share compound annual growth rate of 14%, which implies a price to earnings growth (PEG) ratio of 1.2x compared with the PEG for the broader UK sector of 1.6x.'
Shares in the group closed at £31.18 on Tuesday, down 17p or 0.5%.
Peel Hunt lifts target price for Alumasc
Peel Hunt has increased its target price for precision engineering business Alumasc (ALU.L) on the back of an encouraging full-year update.
Turnover rose 6% over the year, with underlying operating profits hitting £6.6 million, up from £4 million last year.
Analyst Clyde Lewis said there's still plenty of uncertainty about the trading outlook, but he noted that the building products arm is doing well, posting an 18% rise in turnover.
'We still think profits will expand on the back of a brighter economy,' Lewis said. 'We have upped our target price to 130p (was 109p), as we believe the market will be more comfortable with slightly higher valuation multiples. Buy.'
Shares in the group closed at 130p on Tuesday, up 10p or 8.3%.