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The Expert View: Hyder Consulting, Anglo American & Rentokil
by Michelle McGagh on Mar 04, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also including Amlin and Jupiter Fund Management.
Oversold Hyder upgraded to ‘buy’ by Numis
Numis has upgraded engineering consultancy Hyder Consulting (HYC.L) despite a profit warning last month as it believes the stock is oversold.
Analyst Will Wallis upgraded his recommendation from ‘hold’ to ‘buy’ and placed a target price of 585p on the shares.
‘We believe that Hyder has fundamentally strong consulting businesses in the UK, Middle East and Australia, backed up by a market-leading focus on global sourcing,’ he said. ‘The profit warning with the interim management statement last month was clearly a set-back, but we see the share price fall as an excellent buying opportunity.’
He added that investors ‘can do very well buying good companies at cheap prices during periods of uncertainty’ and that ‘our forecasts are sensibly cautious’.
Numis does not expect the company to be sold despite being the subject of takeover rumours.
Amlin leading the pack when it comes to investment returns
Independent insurance company Amlin (AML.L) has exceeded expectations in its 2013 results, leading Peel Hunt to reiterate its ‘buy’ recommendation.
Analyst Mark Williamson placed a target price of 489p on the shares and said ‘yet again Amlin has led the pack in terms of investment return’.
‘Results have exceeded our expectations, with profits before tax rising 23% to £325.7 million, versus our expectations for £296.3 million,’ he said. ‘Rate softening in reinsurance lines is being largely offset by improvement in UK commercial and continued recovery at Amlin Europe and Leadenhall Capital Partners is exhibiting strong growth. The attractions are not reflected in the valuation and we reiterate our ‘buy’ recommendation.’
The company has also confirmed its intention to increase its 40% stake in Leadenhall to all or part during 2014. Williamson described the valuation of Leadenhall stock as ‘undemanding given the returns being generated and with its attractions further enhanced by the 5.9% yield’.
Jupiter shows confidence with increased dividend payout
News that Jupiter Fund Management (JUP.L) plans to increase its dividend by 43% reflects confidence in its balance sheet.
Barclays’ analyst Toni Dang retained an ‘equal weight’ recommendation on the shares but increased the target price from 410p to 425p.
‘Jupiter delivered a set of in-line full year 2013 results with one of the key highlights the 43% increase in dividend per share to 12.6p,’ she said. ‘This reflects management’s increased confidence and their improved balance sheet position to a net cash balance of £160 million at December 2013. Management described an intention to start to return more capital to shareholders as they will no longer need their consolidated capital waiver once it expires in 2015.
Dang added that Jupiter has said it has been put under no pressure to discount its fund manager fees due to retail distribution review rules, although this remains a concern for the analyst.
‘We remain cautious that there is a possibility super-clean pricing might become widespread across the industry over the next couple of years. With Jupiter possessing the highest revenue margins among their listed UK long-only peers, they may be forced to respond and management fee margins could decline at a faster rate.’
Anglo American downgraded as shares trade at a premium
Liberum analyst Ben Davis has downgraded mining giant Anglo American (AAL.L), deeming it a ‘higher risk investment proposition than its peers’.
Davis placed a target price of £13.00 on the shares, which he believes are trading at a premium.
‘Over half the company’s profits originate in South Africa and its major growth projects are greenfield. Despite this, the shares trade at a premium, offer 10-25% less yield than its peers and its rising debt levels limit future capital returns,’ he said.
‘Whilst we anticipate some turnaround of underperforming assets, we downgrade to ‘sell’ after recent outperformance.’
Davis does not believe there is potential for capital returns ‘in the next three years’ and warned that a platinum workers strike could accelerate to ‘either resolution or more militant type action’.
Rentokil a hold but could do better
Jefferies analyst Justin Jordan is maintaining a ‘hold’ recommendation on exterminator Rentokil (RTO.L) as he waits to see what steps new chief executive Andy Ransom will take.
Jordan increased the target price from 128p to 141p on the shares and said that full year 2013 results were in-line with expectations and with a welcome £250 million disposal.
Despite this he said Ransom faces free cash flow, foreign exchange and macro headwinds in 2014.
‘We advocate continued…focus on core, improved free cash flow generation…[and] growth (organic and M&A),’ he said. ‘Rentokil could aspire to a higher rating and our upside 173p price target, valuing each business in line with sector peers on sum-of-the-parts basis.’
The recommendation remained a hold ‘pending evidence of sustained operational improvement’.