The Expert View: Imperial Tobacco, National Grid and Xcite Energy

Our daily round-up of analyst recommendations and commentary, featuring Imperial Tobacco, National Grid, Xcite Energy, Travis Perkins and Alternative Networks.

Key stats
Market capitalisation	£23,296m
No. of shares out	988m
No. of shares floating	977m
No. of common shareholders	not stated
No. of employees	37200
Trading volume (10 day avg.)	2m
Turnover	£28,574m
Profit before tax	£678m
Earnings per share	67.92p
Cashflow per share	123.71p
Cash per share	63.73p

*Correct as at 30 Jan 2013

More bad news for Imperial Tobacco

Although Imperial Tobacco (IMP.L) shares remain a 'buy' for Canaccord analyst Eddy Hargreaves he doesn't expect any progress in the short term following a lacklustre trading update.

Even through the company pulled expectations back a fortnight ago the first-quarter update was a further disappointment, the analyst said. Sales in the three months to December were down 1%, with revenue up about 2.5%. This was in line with Hargreaves' forecast, but about one percentage point below consensus expectations.

In another blow for investors the company has announced finance director Bob Dyrbus is to retire. The news follows the group marketing director Robert Funari's recent resignation, and Hargreaves said the double loss would raise questions about succession planning.

The analyst said the shares remain well supported with a price to earnings ratio of 10.5x and a 5% yield, but he doesn't expect gains in the short term.

Shares in the group closed at £23.52 on Wednesday, down 114p or 4.6%.

Key stats
Market capitalisation	£25,258m
No. of shares out	3,638m
No. of shares floating	3,489m
No. of common shareholders	not stated
No. of employees	25645
Trading volume (10 day avg.)	7m
Turnover	£13,832m
Profit before tax	£2,036m
Earnings per share	55.77p
Cashflow per share	91.18p
Cash per share	56.28p

*Correct as at 30 Jan 2013

Don't expect bigger dividends from National Grid, JPM warns

National Grid (NG.L)'s forthcoming announcement on its new dividend policy is unlikely to cheer up its shareholders, warns JP Morgan analyst Edmund Reid.

The utility has committed to announcing changes to its dividend policy by the full-year results in May. But Reid doesn't expect the news to be good. 'We see little scope for Grid’s dividend policy to exceed market expectations of maintaining the dividend in real terms due to constraints around its credit metrics,' he said.

'Indeed on our analysis, there is an argument for Grid to rebase its dividend by around 20% to solidify its credit metrics and provide it with more financing headroom.'

Since the start of the year National Grid has been the UK's worst-performing utility, according to Reid, underperforming the sector by 3.4%. Reid has an 'underweight' stance on the shares.

Shares in the group closed at 696p on Wednesday, down 5.4p or 0.8%.

Key stats
Market capitalisation	£292m
No. of shares out	290m
No. of shares floating	251m
No. of common shareholders	not stated
No. of employees	20
Trading volume (10 day avg.)	2m
Turnover	£0m
Profit before tax	£0m
Earnings per share	0.07p
Cashflow per share	0.10p
Cash per share	31.13p

*Correct as at 30 Jan 2013

Merchant Securities backs Xcite Energy despite loan extension

Xcite Energy (XEL.L)'s decision to extend a loan to finance the development of one of its oil fields isn't a great one, according to Merchant Securities analyst Brendan Long, but the company's still a 'buy'.

Xcite Energy has extended the maturity date of an unsecured $60 million loan by 275 days to 31 December 2013. The money will be used to develop its Bentley field located in the North Sea.

Long said the decision was a bad one. 'Our immediate reaction is that the interest rate is too high. The extended production test was a success, which greatly reduced the risks of the Bentley field. Therefore we thought alternative and less costly financing would beavailable. The short-term nature of the loan notes does not make them suitable for funding the Bentley field development, in our opinion.'

As such he's trimmed his target price on the shares to 167.0p from 167.8p to take into account the interest payments incurred. He still believes the shares are undervalued though.

Shares in the group closed at 100.8p on Wednesday, up 0.8p or 0.8%.

Key stats
Market capitalisation	£2,906m
No. of shares out	244m
No. of shares floating	226m
No. of common shareholders	not stated
No. of employees	21423
Trading volume (10 day avg.)	1m
Turnover	£4,779m
Profit before tax	£212m
Earnings per share	87.33p
Cashflow per share	118.91p
Cash per share	33.09p

*Correct as at 30 Jan 2013

Travis Perkins moves into green energy gear

Seymour Pierce analyst Kevin Lapwood has upgraded his target price for builders' merchant Travis Perkins (TPK.L) on news it has acquired green energy equipment firm Solfex.

Travis Perkins has paid an initial sum of £8 million for Solfex, and Lapwood said the decision was a good move. 'The acquisition, although small, is significant because it takes Travis Perkins into a fast growing area of the building materials market, with considerable benefits for its existing BSS and City Plumbing operations,' he said.

'Given the unhelpful market backdrop and recent lacklustre news from the retail sector, Travis Perkins appears to be holding up reasonably well. Although like for like sales for the first 11 months of last year were a touch below expectations at -1.8%, the impact of acquisitions should enable the company to meet our full-year revenue target.'

Lapwood reiterated his 'buy' recommendation on the shares, and his target price rises from £11.50 to £13.50.

Shares in the group closed at £11.97 on Wednesday, down 13.1p or 1.1%.

Key stats
Market capitalisation	£124m
No. of shares out	46m
No. of shares floating	14m
No. of common shareholders	not stated
No. of employees	497
Trading volume (10 day avg.)	0m
Turnover	£115m
Profit before tax	£10m
Earnings per share	19.53p
Cashflow per share	24.97p
Cash per share	44.19p

*Correct as at 30 Jan 2013

Alternative Networks set for the next stage, Investec says

Investec analyst James Goodman has increased his target price for telecoms business Alternative Networks (AN.L), saying the firm is well placed to expand in the year ahead.

'We have long considered Alternative Networks a standout-quality stock in the sector, with an excellent record of cash generation, dividend progression and earnings growth,' he said.

'Recent board strengthening and an intention to deploy cash have set the scene for the next strategic leg to the story, in our view.'

The company has upwards of £35 million available for acquisitions, which Goodman said could lead to the shares appreciating. The analyst has increased his target price by 20p to 330p, and he reiterated his 'buy' recommendation.

Shares in the group closed at 270p on Wednesday, up 13p or 5%.