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The Expert View: Greggs, Weir and Sainsbury's
by Harry Brooks on Mar 20, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Tate & Lyle and Resolution.
Our daily round-up of analyst recommendations and commentary, featuring Greggs, Weir, Sainsbury's, Tate & Lyle and Resolution.
Canaccord upgrades Greggs on refurb plan
Today's preliminary results from Greggs (GRG.L) won't contain any big surprises, according to Canaccord analyst Wayne Brown, but the gradual shift in the bakery chain's strategy has persuaded him to upgrade the shares from 'sell' to 'hold'.
Although Brown said it's probably too soon for CEO Roger Whiteside to formally announce a new strategy given that he was only appointed in January, the last update did hint at Greggs' strategic direction.
Greggs looks set to close 30 stores this year (up from previous guidance of about 20), Brown said, while also refurbishing 200-300 shops - more than double the previous guidance.
'Our chief concerns have been that around 85% of its estate is located on the high street and the group lacks pricing power due to the deep value the brand is notorious for,' Brown said. 'It is this latter element that will benefit in time from the higher rate of refurbishments.'
It's too soon to call a full recovery, the analyst said, but general sentiment looks to be improving. His target price rises 28% to 485p.
Shares in the group closed at 520.3p on Tuesday, up 2.3p or 0.4%.
Berenberg Bank downgrades Weir
Berenberg Bank analyst Alexander Virgo has downgraded oil and gas industry engineer Weir (WEIR.L) from 'buy' to 'hold' following the rise in the shares over the year so far.
Although Virgo has above-consensus earnings projections for Weir, he said its performance in the year to date and the recovery in its valuation mean he can't see much upside to the share price for now.
'Valuation has recovered but stock now looks fairly valued,' Virgo said.
'Despite the likelihood of underlying technical support as short sellers continue to reduce their positions, Weir’s year-to-date performance (+28%) and recovery in valuation (15x near-term price to earnings, 2.2x enterprise value/Sales vs. earnings margins of 18%) mean we struggle to see significant upside from current share price levels.'
Shares in the group closed at £23.32 on Tuesday, down 98p or 4%.
Sainsbury's reports strong fourth quarter
Shore Capital analyst Clive Black has increased his earnings estimates for Sainsbury's (SBRY.L) after the supermaket giant confirmed that it has outpaced its rivals over the past quarter.
Ex-fuel like-for-like (LFL) sales increased 3.6% in the 10 weeks to 16 March, beating Black's 2.25-2.75% estimate. This was the strongest quarter in the year for Sainsbury's, and significantly ahead of the other big grocers. Black has upgraded his full-year earnings estimate by £6 million to £824 million.
Morrisons fourth-quarter update showed sales down 4.1% (although the period covered was slightly different), while Black expects Tesco to deliver between -0.5% and -1%.
'All credit to Sainsbury’s in regaining momentum post a somewhat subdued Christmas trading period by its own exacting standards in recent times,' Black said. 'Sainsbury stock as performed reasonably well in recent weeks, perhaps reflecting its sector outperformance from a trading perspective and its low association with the recent food adulteration issues.'
However, the analyst said the valuation on the shares is 'in the fair to middling bracket', and he reiterated his 'hold' recommendation.
Shares in the group closed at 371.8p on Tuesday, up 6.6p or 1.8%.
Deutsche Bank predicts strong results from Tate & Lyle
Investors are set to enjoy a sweet treat from ingredients maker Tate & Lyle (TATE.L) when it unveils its annual results next week, according to Deutsche Bank analyst Harold Thompson.
Thompson expects Thursday's update to show modest profit increases in bulk ingredients and strong top-line growth in food ingredients. 'Overall, we forecast modest earnings per share (EPS) progress for the year,' he said.
'We have increased our 2014 EPS forecast by 2%, with foreign exchange rate changes explaining the majority of the move. Given a changing group profile towards the ingredient industry, at what we see as an attractive valuation, buy.'
Shares in the group closed at 837.5p on Tuesday, up 5p or 0.6%.
JP Morgan rolls forward Resolution's target price
JP Morgan analyst Ashik Musaddi has increased his target price for London-headquartered insurance company Resolution (RSL.L) ahead of next week's annual results, although he's maintaining an 'underweight' stance on the shares.
Musaddi's target price goes from 227p to 257p and he expects operating profit of £326 million for 2012. 'We see some improvement in UK life earnings, partly offset by corporate cost of debt,' he added.
'We forecast earnings will remain under pressure in the Friends Provident International business due to continuing increased new business strain.'
The analyst is predicting the dividend to come in at 21.14p for 2012, in line with the management's guidance.
Shares in the group closed at 268p on Tuesday, up 1p or 0.4%.