Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/wealth-manager/gallery/a754247
The Expert View: Hammerson, Smith & Nephew and AG Barr
by Michelle McGagh on Jun 03, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Ithaca Energy and Senior.
Top performer Hammerson downgraded as discount closes
Once a top performing stock, property developer Hammerson (HMSO) has now been downgraded as the valuation of the shares sit at a seven -year high.
Liberum analyst Jon Stewart downgraded the shares from ‘buy’ to ‘hold’ but increased the target price from 619p to 628p. Shares were up 0.6% at 597.5p yesterday.
‘Hammerson has been the second best performing stock in our coverage year-to-date, buoyed by a UK consumer recovery that we expect to translate to improved rental growth,’ he said. ‘However, at 1.01 times spot net asset value the valuation now sits at a seven-year high and the discount to the FTSE 100 peers has closed.’
He added that any upside would rely on the ‘delivery of growth’ which he expected to be gradual.
Underappreciated Smith & Nephew has a lot further to go, says Barclays
Smith & Nephew (SN), maker of artificial hips and orthotics, is underappreciated by the market, according to Barclays.
Analyst Alexander Kieban retained an ‘equal weight’ rating but lifted the target price a substantial 22% from 780p to 950p, although said the upside case for the stock could rise to as much as £15.00. Shares were down 1.8% at £10.27 yesterday.
‘We think Smith & Nephew is worth 950p in a base case, but we think the market underappreciated the full strategic potential of the company,’ he said. ‘Based on cost/synergy potential and the opportunity for tax rate optimisation we value Smith & Nephew at as much as £13.00 to £15.00 per share.’
Kieban added the company is seen as a ‘developed market ortho player’ but this tag did not ‘give sufficient credit to the company for increasing its exposure to higher growth platforms’.
‘We expect that by 2019 the legacy US ortho business will be as little as 17% of sales,’ he said. ‘On an historical basis, we think the impact of this change has not been fully priced in. We also believe untapped cost reduction/ synergy potential remains underappreciated.’
AG Barr increases capacity with production investment
Soft drinks manufacturer AG Barr (BAG) has announced plans for further investment in Milton Keynes to increase carton production.
Investec analyst Nicola Mallard retained an ‘add’ rating and a target price of 645p on the shares. Shares we up a penny at 626p yesterday.
‘AG Barr has announced the next stage of investment at its Milton Keynes site. This will entail the addition of carton production capacity, which is a core format, used predominantly by [soft drink] Rubicon,’ she said. ‘This is presently undertaken in South Wales and management have commenced a consultation process for this site. The new capacity will be more flexible, faster and result in logistics savings.’
Although Mallard is still waiting for details of the financial implications of the project she retained her target price and said the only key risk was a change in the consumer backdrop.
Discounted Ithaca upgraded by Peel Hunt
North Sea oil and gas operator Ithaca Energy (IAE) has been upgraded by Peel Hunt analysts on the basis it is trading at a 10% discount.
Werner Riding increased his rating from ‘hold’ to ‘buy’ and improved the target price from 150p to 157p in response to guidance updates at the Greater Stella Area project in the centre of the North Sea and financial results. Shares were up 1% at 136.5p yesterday.
‘Our analysis shows the company is trading at around a 10% discount to core net asset value of 150p… and represents an opportunity to access relatively low-risk, development-led cash flow growth,’ said Riding. ‘Limited exposure to costly exploration drilling should allow debt reduction and provide the potential for selective mergers and acquisitions to drive future net asset value growth over the medium-term.’
Senior downgraded as currency headwinds bite
Aerospace engineering company Senior (SNR) has been downgraded after currency changes damaged trading in the first half of its financial year.
Shore Capital analyst David O’Brien downgraded his recommendation from ‘buy’ to ‘hold’. ‘With the half-year end approaching we have taken the opportunity to revisit our estimates on Senior,’ said O’Brien. ‘While we believe that sterling has probably peaked against the US dollar, the damage has been done to H1 trading. The US dollar is the most significant currency for Senior, followed by the euro, and sterling’s appreciation has taken its toll during H1.’
On the plus side, O’Brien expects good growth in large commercial aerospace and increased build rates.