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The Expert View: HSBC, Interserve and 888 Holdings
by Michelle McGagh on Jul 10, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Workspace Group and Unite.
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HSBC not evolving as quickly as hoped
HSBC (HSBA) may be trying to turn the business around but Investec is worried the ‘story hasn’t evolved that much’.
Analyst Ian Gordon retained a ‘hold’ rating and target price of 620p on the shares as he said he ‘still can’t locate that elusive growth and return on equity appears set to remain sub-10% between 2014 and 2016’. Shares were trading at 595.7p at yesterday's close.
‘Ahead of second quarter 2014 results on 4 August we are 3% below company-compiled profit before tax consensus for full year 2014, and 4 to 7% below through 2015/16,’ said Gordon. ‘Impairments may have fallen, but with increasing dependence on global banking and markets – where revenues fell 20% in the first quarter – and a lacklustre retail contribution, we remain cautious.’
Gordon added that ‘the HSBC story hasn’t evolved that much’ and the global banking arm ‘is not immune from a slowdown in Asia and a more challenging investment banking market in Europe’.
Interserve shares fall prompts Peel Hunt upgrade
Construction company Interserve (IRV) has been upgraded after share falls which better reflect near-term risk in the company.
Peel Hunt analyst Andrew Nussey upgraded his recommendation from ‘sell’ to ‘hold’ and increased the target price from 600p to 625p. Shares were trading at 620p at yesterday's close.
‘The shares have derated… as some investors have questioned the strategic merit of the Initial Facilities acquisition [from Rentokil]. However, we now consider the rating not only to reflect more fairly the near-term contract risk… and integration risk, but also the opportunity from recovery in UK and Middle East construction,’ he said.
Nussey said the share price reflected the risk ‘as well as the potential reward’.
888 earnings per share increased after first-half earnings boost
Gaming group 888 Holdings (888) has said it expects earnings for the first half of its financial year to be ‘significantly’ ahead of last year.
This news led Numis analyst Ivor Jones to reiterate his ‘buy’ rating and target price of 220p but upgrade full-year 2014 earnings per share estimates by 8%. Shares were trading at 125p at yesterday's close.
‘In light of this strong trading we are up upgrading our full-year 2014 earnings forecast by 14% to $87 million (£50.7 million) from $76 million, and full-year 2014 earnings per share by 8% to 17.5 cents from 16.2 cents,’ he said.
‘Once again, 888 has demonstrated how its operational excellence converts into bottom line success.’
Workspace becomes part of the ‘London regeneration story’
Commercial property letting company Workspace (WKP) has impressed Jefferies analysts who believe momentum is building in the business.
Analyst Robert Duncan retained a ‘buy’ rating and a target price of 715p on the shares, which were trading at 573p at yesterday's close, following a presentation by chief executive Jamie Hopkins and chief financial officer Graham Clemett to Jefferies’ sales desk.
Duncan said the presentation ‘confirmed that the momentum seen over the last couple of years has continued post year-end and that, with significant amounts of newly refurbished/ developed space set to be delivered (over the next 12 to 18 months), Workspace is well placed to see both earnings and net asset value progress’.
‘Workspace has shaken of its ‘edge of M25 industrial’ image to firmly become part of the London regeneration story and is now reaping the benefits of closing the information gap with capital markets, the state investment in CrossRail and the Northern line [underground] extension,’ he said.
Unite share pullback creates opportunity following acquisition
Liberum sees ‘compelling value’ in Unite (UTG) shares after it snapped up a regional student accommodation portfolio from Cordea Savills.
Analyst Michael Burt retained a ‘buy’ recommendation and a target price of 516p after Unite bought the portfolio, which includes two properties in Portsmouth and Bath, for £137 million.
‘Unite, via its UK Student Accommodation Fund, has acquired a £137 million regional portfolio from Cordea Savills for a 6.3% initial yield. The purchase is expected to be around 6% earnings per share accretive, further enhancing visibility over already impressive earnings per share growth,’ he said.
‘We forecast Unite to deliver 63% earnings per share growth and 38% growth in net asset value in the three years to 2016.
‘We see compelling value in Unite’s shares… with a 9% pullback in the past month creating a buying opportunity.’