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The Expert View: Greene King, Electrocomponents and Cape
by Harry Brooks on Sep 02, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Bwin.party and The Restaurant Group.
Our daily round-up of analyst recommendations and commentary, featuring Greene King, Electrocomponents, Cape, Bwin.party and The Restaurant Group.
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Greene King set for a strong quarter
Panmure Gordon is expecting a strong first-quarter trading update from pubco Greene King (GNK.L) tomorrow despite some challenging comparatives.
Eight weeks into the period like-for-like sales were up 3.3%, and analyst Simon French expects this to have risen to about 5% by the end of the quarter.
'Greene King continues to outperform the industry on a LFL sales basis,which we believe is driven by its high quality, value offerings, particularly through Hungry Horse,' French said.
However, the valuation means he's only lukewarm on the shares: 'The stock trades on a 2014E adjusted enterprise value/earnings of 9.9x, which is at the top end of the sector range, whilst yielding 3.5%. We reiterate our Hold recommendation and 750p target price.'
Shares in the group closed at 833p on Friday, down 4.5p or 0.5%.
UBS upgrades Electrocomponents to 'buy'
UBS has upgraded Electrocomponents (ECM.L) from 'hold' to 'buy', arguing investors have underestimated the firm's ability to deliver above-market levels of growth.
Analyst Rory McKenzie said the electronic/industrial component market is slowly returning to growth, but ECM has potential for attractive operating leverage which should see it rise above its rivals.
'We see potential earnings upgrades for Electrocomponents over the next two to three years,' he said.
'We expect sales growth to accelerate beyond the underlying market pick-up dueto higher market share gains than consensus expects, and relative gross margin stability should allow the resulting operating leverage to drive a strong five-year earnings per share (EPS) compound annual growth rate of 10%. We are 5% ahead of consensus 2016 EPS.'
Shares in the group closed at 260.4p on Friday, up 4.5p or 1.8%.
Market has it wrong on Cape, Canaccord argues
Industrial services firm Cape (CIU.L) remains undervalued, according to Canaccord, which has a 'buy' recommendation on the shares.
Friday's first-half results showed revenues up 3% from £359.7 million to £371.1 million and profits up an impressive 84% to £21.7 million, due to last year's £14 million provision for the liquefied natural gas (LNG) project in Arzew in Algeria.
Weak demand in Australia continues to weigh on sentiment, analyst Michael O'Brien said, but he sees underlying strength. 'We believe the Australian market masks the Group’s strong underlying market positions in the UK and Middle East (something in our mind underwriting the share price in terms of a sum of the parts valuation) and the opportunities for it to leverage new emerging growth markets,' he said.
'We also see its strong track record in LNG projects as appealing to both the investment case and, in addition, potential corporate activity (we note recent approaches for Kentz). We believe that these are not reflected in the 2013E 9.5x price-to-earnings ratio.'
Shares in the group closed at 253.5p on Friday, down 5p or 1.9%.
Bwin.party: bad first half, worse third quarter
Peel Hunt has put its target price for online gaming business Bwin.party Digital Entertainment (BPTY.L) under review following a trading update that undershot some already pessimistic analyst expectations.
Revenues in the first eight weeks of the quarter are down 16% on the back of reduced investment in non-core markets, German taxation, poor product development, and the weak economic backdrop in key markets.
'H1 was always going to be poor, but trading thus far Q3 has been even worse than expected,' analyst Nick Batram said, placing his 152p target price under review. 'Downgrades should not come as a total surprise.'
Nonetheless, Batram reiterated his 'buy' recommendation: 'Q3 should represent the nadir of the group’s fortunes, with new product launches, New Jersey and a meaner and leaner business emerging in 2014. There is clearly a management credibility issue, but there is upside from here.'
Shares in the group closed at 109.7p on Friday, down 17.6p or 13.8%.
'Sell' The Restaurant Group, Shore Capital says
Shore Capital has reiterated its 'sell' recommendation on The Restaurant Group (RTN.L) despite a first-half update that beat its forecasts.
Pre-tax profits in the period rose 15% year-on-year to £30 million, beating analyst Greg Johnson's £29.4 million forecast. The dividend rose 17% to 5.25p, again ahead of the analyst's forecast.
However, Johnson said even though RTN is well-managed and has excellent cash flow characteristics, the valuation's just too steep.
'The valuation on a 2013F price to earnings of 20.1x and an enterprise value/earnings of 10.4x, remains too rich for us,' he said. 'Our cash flow analysis suggests that the market is effectively fully discounting 30-35 new sites per annum for the next 10 years at a weighted average cost of capital of 8.6%. SELL.'
Shares in the group closed at 543p on Friday, up 4p or 0.7%.