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The Expert View: Homeserve, Cobham, Dechra Pharmaceuticals

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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.

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Key stats
Market capitalisation£1,122m
No. of shares out330m
No. of shares floating278m
No. of common shareholdersnot stated
No. of employees4062
Trading volume (10 day avg.)0m
Turnover£547m
Profit before tax£42m
Earnings per share12.70p
Cashflow per share22.67p
Cash per share27.30p

*Correct as at 20 May 2014

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.

Key stats
Market capitalisation£3,203m
No. of shares out1,079m
No. of shares floating1,061m
No. of common shareholdersnot stated
No. of employees10090
Trading volume (10 day avg.)1m
Turnover£1,790m
Profit before tax£114m
Earnings per share10.65p
Cashflow per share26.21p
Cash per share18.61p

*Correct as at 20 May 2014

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.

Key stats
Market capitalisation£1,453m
No. of shares out128m
No. of shares floating40m
No. of common shareholdersnot stated
No. of employees2324
Trading volume (10 day avg.)0m
Turnover£405m
Profit before tax£73m
Earnings per share56.70p
Cashflow per share72.72p
Cash per share8.91p

*Correct as at 20 May 2014

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.’

Key stats
Market capitalisation£603m
No. of shares out88m
No. of shares floating85m
No. of common shareholdersnot stated
No. of employees1287
Trading volume (10 day avg.)0m
Turnover£189m
Profit before tax£11m
Earnings per share12.39p
Cashflow per share38.27p
Cash per share37.62p

*Correct as at 20 May 2014

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.’

Key stats
Market capitalisation£725m
No. of shares out94m
No. of shares floating70m
No. of common shareholdersnot stated
No. of employees218
Trading volume (10 day avg.)0m
Turnover183m USD
Profit before tax12m USD
Earnings per share0.14 USD
Cashflow per share0.93 USD
Cash per share0.16 USD

*Correct as at 20 May 2014

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.

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