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The Expert View: ITV, Associated British Foods and Ithaca Energy
by Harry Brooks on Sep 11, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Whitbread and Fenner.
Our daily round-up of analyst recommendations and commentary, featuring ITV, Associated British Foods, Ithaca Energy, Whitbread and Fenner.
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Westhouse upgrades ITV to 'buy'
Westhouse has upgraded broadcaster ITV (ITV.L) from 'neutral' to 'buy' on the back of growing optimism about advertising revenues and content sales.
Analyst Roddy Davidson has increased his target price from 167p to 195p. On the advertising revenues, he said the previous assumptions were now looking too conservative given improving domestic economic confidence and positive news on advertising intentions.
'On the content side of the business, we have raised our year-on-year revenue growth forecast for 2013, 2014 and 2015 from 17%, 9% and 16% to 32%, 13% and 6%, respectively following an encouraging H1 performance and the anticipated impact of a sequence of bolt-on acquisitions,' he added.
'We remain bulls of ITV’s unrivalled ability to deliver large audiences, the increasing breadth of its content portfolio, the quality and consistency of its management team/strategy and its compelling cash flow characteristics.'
Shares in the group closed at 181p on Tuesday, up 3.6p or 2%.
Barclays backs Associated British Foods on Primark strength
Barclays has reiterated its 'overweight' recommendation on Associated British Foods (ABF.L) on the back of an encouraging trading update.
The pre-close update said adjusted operating profit for the second half will be ahead of expectations delivered by a strong finish to the year from Primark, while revenues from the sugar division are expected to be weaker than a year ago.
'Sugar may indeed drive earnings downgrades, but we see any sell off as an interesting opportunity,' analyst Liam Rowley said. 'Primark’s impressive momentum shows no signs of slowing and should be supported by significant store opening activity in FY14, plus we see upside risk in Grocery which has finally turned a corner.
'We believe valuation should find support as the higher multiple parts of the business become larger parts of the pie.'
Rowley has a target price on the shares of £21.
Shares in the group closed at £18.42 on Tuesday, up 24p or 1.3%.
Liberum initiates Ithaca Energy at 'buy'
Liberum Capital has initiated North Sea-focused oil explorer Ithaca Energy (IAE.L) with a 'buy' recommendation, saying it's currently trading at a significant discount to fair value.
Ithaca's Greater Stella Area should result in significant free cash flow generation from 2014 onwards, analyst Kate Sloan said. 'We believe that GSA is well on the way to being de-risked and that the required financing is in place, although the market appears to be more cautious,' she said.
The current share price indicates that the market is assuming a 27% cost of capital, the analyst added, higher than the average for its rivals. 'We think a more appropriate level (based on our perception of its risk profile and assuming negative sentiment towards the sector continues) would be 17%, which would value the company at 173p,' she said.
'To us, the stock looks good value. We initiate with a BUY recommendation and 210p price target.'
Shares in the group closed at 126.5p on Tuesday, up 1.3p or 1%.
'Buy' Whitbread, Shore Capital says
Shares in hotel and restaurant business Whitbread (WTB.L) are attractively priced, according to Shore Capital, which has reiterated its 'buy' recommendation.
In the 11 weeks to 15 August like-for-like (LFL) sales rose 2.1% year-on-year. LFL sales increased by 3.0% at Premier Inn, -0.2% at pub restaurants and by 3.0% in Costa.
'We were encouraged by the 3.0% increase in LFL sales at Premier Inn, which is a modest tick-up from the +2.7% in Q1, with LFL revpar ahead by +2.4% in the quarter, an acceleration from the 1.0% in Q1 and 0.8% in Q4 2012/13A – a sign of a pick-up in the domestic economy?' analyst Greg Johnson said.
'Whitbread trades on a 2013/14F price to earnings of 19.8x and an enterprise value/earnings of 11.1x (unadjusted for pension deficit). We see this valuation as justifiable on earnings growth potential alone.'
By way of comparison, US coffee giant Starbucks historically trades at 19x earnings, Johnson added.
Shares in the group closed at £31.38 on Tuesday, down 78p or 2.4%.
Fenner risks receding, Finncap says
Downside risks around conveyor belt maker Fenner (FENR.L) look to be fading into the background, according to Finncap.
Yesterday's year-end pre-close trading update said results should meet expectations, and that the current net debt level of £125 million was better than expected.
'The shares have started to pick up since midsummer, in part reflecting the improved investor sentiment in mining-related areas,' analyst David Buxton said. 'The shares now trade on a price to earnings of 10.7x for 2014, which appears fair at this point.
'We have nudged up our price target to 400p, based on a target of 11.5x for 2014 now that downside risks have diminished. Today’s statement is reassuring and we retain our Hold rating.'
Shares in the group closed at 389.5p on Tuesday, up 18.6p or 5%.