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The Expert View: FirstGroup, Domino’s and WH Smith
by Michelle McGagh on Dec 09, 2013 at 05:01
A round-up of the best analyst commentary on shares, also including Berkeley and AZ Electronic Materials.
Our daily round-up of analyst recommendations and commentary, featuring FirstGroup, Domino’s, WH Smith, Berkeley and AZ Electronic Materials.
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The appointment of Aviva boss John McFarlane as FirstGroup’s new chairman was seen as positive news for the train operator, but not enough for Shore Capital to label the shares a ‘buy’.
McFarlane turned around Aviva’s fortune and is hoped to work the same magic at FirstGroup after joining on 1 January and ‘grapple with the previous regimes legacy of underinvestment’ as Shore Capital analyst Martin Brown put it.
‘During his time at Aviva he has torn into the cost base and sold a number of business units,’ said Brown, who kept his ‘hold’ rating on the shares and a target price of 111p.
‘We believe FirstGroup’s problems are surmountable but we remain to be convinced that earnings can rise high enough to offset the crippling cost of its gross debt anytime soon.’
Brown added that the share would remain on a hold recommendation until ‘the risk profile became more favourable’.
Shares in FirstGroup ended Friday trade up 4.9% at 116p
Peel Hunt has put its ‘buy’ recommendation on pizza company Domino’s Pizza under review following the surprise exit of chief executive Lance Batchelor.
Analyst Nick Batram said the departure created further problems in a company that was dealing with uncertainty in Germany and its roll-out in the UK.
Despite the remaining management team ‘lacking experience’ Batram said Domino’s was ‘still a great business’.
‘Although we consider it right to put our rating under review, we still believe Domino’s Pizza is a good business, particularly in the UK estate,’ he said. ‘Established Domino’s Pizza operations are remarkably resilient and, when there are hiccups, they don’t tend to be material or long-lasting.’
Domino's shares fell 9.2% on Friday, to close at 480p.
Housebuilder Berkeley pleased investors with its half-year profit figures but analysts maintained a ‘hold’ position and a target price of £26.34.
With H1 profits before tax up 19% to £170 million and earnings per share up 22% to 100p, analyst Charlie Campbell said the figures were ‘blow out numbers’.
He predicted ‘smoother returns (ie more frequent payments of dividends)’ in the future and full year profits at ‘the top of the range this year’ with profits before tax estimated at £375 million.
However, it wasn’t all good news as the Autumn Statement brought in capital gains tax for non-resident property owners in the UK.
‘This is an issue for the company as a third of the units are sold overseas,’ said Campbell.
Berkeley shares enjoyed an 11% rally on Friday to close at £25.37
Merck's £1.6 billion takeover offer for AZ Electronic Materials, the producer of liquid crystals used in TVs and tablets, has pleased investors but analysts Numis believe a competitor may put in a higher bid.
‘Other potential bidders for AZ would be Samsung affiliated Cheil Industries, Dow Chemical, Shin-Etsu Chemical and Platform Acquisition Holdings (chemicals industry roll-up vehicle),’ said Nick James of Numis.
‘Given the company has now suddenly come into play, there could be scope for a higher offer and we attach a 25% probability to a 10% improvement in price.’
Numis ranks AZ a ‘hold’.
Shares in AZ, which had rallied 50% on Thursday, fell 0.2% on Friday to 394p
Aggressive plans for international growth have led Investec analysts to brand high-street stationer WH Smith a ‘buy’ with a target price of £12.00.
Its full year report showed a successful change in leadership, with new boss Steve Clarke indicating there will be little change to the strategy that has been in place for nearly a decade.
Analyst Kate Calvert said she expected to see ‘a more aggressive move internationally’ and that the company was ‘capable of delivering double digit growth for the foreseeable future’ thanks to its in-airport stores.
‘The last few years have been spent testing various formats and business models. Its new internationally trade units trade 15-35% higher than under the previous operator. We believe WH Smith has the skills set and knowledge to become a leading travel retail playing in a fragmented market,’ she said.
WH Smith shares rose 2.2% on Friday to 976p.