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The Expert View: HSBC, IMI and Bunzl
by Harry Brooks on Oct 17, 2013 at 05:01
A roundup of analysts' commentary on shares, also including ARM Holdings and Kazakhmys.
Our daily round-up of analyst recommendations and commentary, featuring HSBC, IMI, Bunzl, ARM Holdings and Kazakhmys.
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Numis upgrades HSBC on share weakness
A run of share price weakness has provided savvy investors with an ideal entry window into HSBC (HSBA.L), according to Numis, which has upgraded the shares from 'hold' to 'add'.
'We would highlight geographic diversity; improving profitability;positive gearing to rising interest rates; and a premium rating warranted for management and balance sheet strength,' analyst Mike Trippitt said.
'Advanced economies are strengthening, with many emerging economies' growth rates coming off cyclical peaks. Whether this slower growth is cyclical or structural, we believe HSBC's diversity positions it well.'
Based on various value metrics inclucing a 2016 estimated return on risk weighted assets of 2.41%, Trippitt has a target price of 760p.
Shares in the group closed at 685.6p on Wednesday, down 1.8p or 0.3%.
Jefferies cheers IMI's beverage unit disposal
Engineering firm IMI (IMI.L)'s decision to sell off its beverage dispensing operations to Warren Buffet's Berkshire Hathaway was a good move, according to Jefferies.
Most of the £690 million raised through the sale will be given back to shareholders, and the remaining £70 million will be paid into the UK pension fund.
'Shareholders have long wanted this to happen, and they have had their wish granted,' the analyst said.
'At first glance, the disposal price might seem a touch light, although we recognise that Merchandising is a lumpy business and the disposal has been structured in a way that there will be no tax paid (which must be factored into one’s thinking).'
Following the disposal IMI is 'in an interesting place', the analyst said, and he believes the shares may well now rerate. For now he retains his 'hold' recommendation.
Shares in the group closed at £15.27 on Wednesday, up 28.2p or 1.9%.
JP Morgan downgrades Bunzl on share price rise
JP Morgan has downgraded outsourcing giant Bunzl (BNZL.L) from 'overweight' to 'neutral' following a rise in the shares, although it says longer term they remain a good bet.
'We move our recommendation on Bunzl from Overweight to Neutral as the shares have performed strongly this year, rising 31%, and we believe that there is, perhaps, now more upside from some of the other shares within our sector coverage,' analyst Victoria Prior said.
'The outperformance in the shares has probably been prompted by an increase in acquisition activity, acceleration in organic revenue growth and expansion in the margin and we feel that some of these positive points are now known about.'
The analyst also said that more 'cyclical' shares in the sector that will move in line with the wider markets are also starting to look more attractive as the global economic backdrop begins to brighten.
Nonetheless, she said it remains attractive as a long-term bet: 'We think Bunzl remains very attractive especially as it continues to act as the main consolidator in a fragmented, immature market globally for non-food consumables distribution.'
Shares in the group closed at £13.11 on Wednesday, down 19.3p or 1.5%.
'Sell' ARM Holdings, Liberum says
Liberum Capital has reiterated its 'sell' recommendation on chipmaker ARM Holdings (ARM.L) ahead of next week's third-quarter trading update.
On the positive side, analyst Janardan Menon expects to see solid licensing revenues on the back of deals with Fujitsu, Entropic and Mediatek.
However, he expects high-end smartphone related semiconductor demand to have slowed. 'There have been clear signs of deceleration in the high-end smartphone markets over the past year,' he said.
'While overall growth rates remain high (more than 20%) due to strength in low-end smartphone demand, semiconductor dollar content is significantly lower in low-end devices. The same is true for the tablet market as well.
'We regard the stock as being expensive and maintain our sell recommendation and 725p price target.'
Shares in the group closed at £10.30 on Wednesday, up 12p or 1.2%.
Barclays trims target price for Kazakhmys
Barclays has reduced its target price for copper miner Kazakhmys (KAZ.L), arguing that delivery risks mean the shares warrant a hefty valuation discount.
'We retain our underweight rating on Kazakhmys and cut our price target to 192p, based on a 25% discount to what we believe is a reasonable scenario,' analyst Amos Fletcher said.
The current price to net present value ratio of 0.97x makes sense if the company manages to reduce its production costs and deliver its two growth projects on time and on budget, but this is far from guaranteed, Fletcher added.
'We believe a 25% discount is appropriate to underwrite the risks of delivery combined with extreme prospective gearing levels and minimal near-term valuation support,' he added.
Shares in the group closed at 263.5p on Wednesday, down 4.6p or 1.7%.