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The Expert View: Homeserve, Cobham, Dechra Pharmaceuticals
by Michelle McGagh on May 21, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Euromoney and APR Energy.
Homeserve restructure could provide divi boost
Emergency repairs business Homeserve (HSV) could pay out a special dividend or instigate a share buy-back.
Liberum analyst Joe Brent retained a ‘buy’ rating and target price of 350p after full-year results that were slightly ahead of his consensus but in line with general consensus. Shares jumped 23.2p, or 7.3%, to 340.3p on news of the results.
While the figures provided no shocks, Homeserve management said they would look at the capital structure of the business, leading to speculation of a payout for shareholders.
‘Management indicated that they will review the capital structure, which may result in an increased dividend, special dividend or share buy-back,’ said Brent.
Cobham acquisition would push it into commercial markets
Defence and security specialist Cobham’s (COB) proposed acquisition of US communications equipment firm Aeroflex for $1.5 billion (£890 million) would be a good fit for the business despite the ‘relative lack of sales growth in the latter in the past two years’, according to Jeffries.
Analyst Sandy Morris retained a ‘buy’ on Cobham and a target price of 290p on the shares, which dropped 14.2p, or 4.6%, to 298p yesterday.
‘Our snap reaction to the proposed acquisition is that it is quite a complex business that may take us some time to understand. Nonetheless, it also appears to be a decisive step forward in implementing Cobham’s strategy, something we welcome,’ said Morris.
‘If Cobham can achieve the synergies identified and if – like Cobham – Aeroflex returns to organic growth in full year 2015, the outlook for the enlarged group will be positive.’
Morris added that on first glance Aeroflex had ‘much in common’ with Cobham although ‘we need to better understand… the relative lack of sales growth at Aeroflex between 2013 and 2014’.
‘We concede Aeroflex furthers Cobham’s expansion into commercial markets,’ he said.
Invest in cheap Euromoney now, says Peel Hunt
The outlook for business magazine publisher Euromoney (ERM) may look tough this year but the following two years are much more exciting, according to Peel Hunt.
Analyst Malcolm Morgan retained a ‘buy’ recommendation and a target price of £12.50 on the shares. Shares were trading yesterday down 10p, or 0.9%, at £11.30.
‘Euromoney’s immediate prospects look constrained,’ he said. ‘But the capacity for acquisition and the benefits of a period of sustained investment make the prospects for 2015 and 2016 potentially much more exciting. Although our headline numbers have been reduced through noise – currency, disposals, investment – the recommendation remains “buy”.’
Morgan added that investors should buy now as the shares had ‘substantially reduced in price’ since the turn of the year and trade at a discount to the FTSE 250.
‘For investors to benefit from the pursuit of [Peel Hunt’s] target, they need to invest before the acquisitions are delivered or recovery becomes manifest.’
Dechra deal to enhance US margins
A small acquisition by Dechra Pharmaceuticals (DECP) of osteoarthritis treatment and food supplement Phycox is expected to boost US business and margins.
Panmure analyst Savvas Neophytou said the $5 million product was not a ‘bulls-eye’ to the rest of Dechra’s portfolio but was bought at a good price that would improve ‘operating leverage of the US business’.
He reiterated a ‘buy’ recommendation and target price of 850p. Shares were yesterday up 8p, or 1.2%, at 691p.
‘There is no mention…of when the deal becomes accretive but the company’s style assures us this will not be a dilutive deal,’ he said. ‘The acquisition brings in better overhead recovery in the US business and should boost margins.’
Investec cautious on outlook for APR Energy
APR Energy (APR) has reported first quarter figures in line with expectations but Investec is still taking a more cautious view of the power provider due to longer term risks.
Analyst John Lawson retained a ‘hold’ recommendation but lowered the target price for the shares from £11.50 to 880p. Shares were down 18.5p, or 2.4%, at 768p yesterday.
‘APR Energy has said it has made a “positive start” to the year and that its first quarter financial and operational performance is “in line with expectations”,’ he said. ‘Total fleet utilisation ended the quarter at 81% and net debt was down. Quite simply, the underlying message appears unchanged. That said, we have taken a more cautious view of the macro outlook after reviewing our estimates and lower our target price. We stay at “hold” as the stock does not seem expensive in a sector context.’
Lawson added that he was using ‘cautious longer-term growth assumptions’ due to concerns about macro conditions, bad debts and contract renewals.