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The Expert View: ITV, HSBC and Tesco
by Michelle McGagh on Feb 27, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also including International Personal Finance and Travis Perkins.
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ITV: what’s not to like?
Broadcaster ITV (ITV.L) remains Jefferies’ favourite European Media stock pick, describing full year results as ‘more exciting than the Downton Abbey finale’.
Analyst David Reynolds reiterated a ‘buy’ rating on the shares and set a target price of 231p (shares were down 4.95% yesterday at 195p) pointing to full year results as ‘evidence…of further progress being made along the transformation plan’.
‘Cost savings and dividends add to the afterglow and we see likely upgrades to consensus flowing from this,’ he said. ‘ITV remains our key European Media pick for 2014.’
ITV reported revenue up 8% year-on-year to £2,389 million against a consensus of £2,364 million.
‘Well, at the end of the day what’s not to like,’ said Reynolds. ‘ITV remains a favourite, well positioned versus the UK economic cycle, the normalisation of advertising spend, the enduring appeal of television as the media of choice, together with continued operational efficiency momentum and cash returns to shareholders.’
Still ‘add’ HSBC after target price revision
Numis analyst Mike Trippitt reiterated his ‘add’ recommendation for HSBC but lowered the target price after 2013 income fell below his forecast.
Trippitt reduced the target price to 725p from 764p (shares were up marginally at 628p yesterday) as underlying income for 2013 came in 3% lower and 2014/15 forecast revisions reflect a ‘lower base and continued near-term margin pressure’.
‘Forecast revisions reflect reductions in income from our original forecast of circa 5% for 2014 and 2015, offset by operating cost reductions of 2%. We now forecast higher impairment charges in 2015, signalling 2014 is effectively the bottom of the cycle,’ said Trippitt.
Although the underlying income was down, 2013 pre-tax profit increased 41% to $21.6 billion, driven by a reduction in loan impairments and cost reductions.
Doorstep lender IPF hit by Polish APR cap
Profits may have been ahead of expectation for doorstep lender International Personal Finance (IPF.L) but Panmure analysts are sticking with their ‘sell’ recommendation.
Analyst Keith Baird placed a target price of 400p on the stock (shares were up 5.95% yesterday at 534p) and although he said the 2013 full year results were strong, he has concerns about regulatory headwinds.
‘Profits were a little ahead of expected on resurgent volume on the back of improving economies,’ he said. ‘Regulatory threats remain the chief risk, especially in Poland, which prompted our ‘sell’ recommendation.’
He said that the improvements in the global economic climate ‘will remain a positive trend’, particularly in Mexico which offers ‘the biggest upside on growth given the expansion there’ but Poland remained on shaky ground.
‘The shares have sold off on the back of the Polish APR cap…There is a lack of visibility on earnings given the regulatory uncertainty so we expect the valuation to reflect that.’
Analysts concerned about Tesco underperformance
A Tesco (TSCO.L) investor day did little to placate Cantor analyst fears about underperformance in the grocery market.
Analyst Mike Dennis maintained a ‘hold’ recommendation and cut the target price from 353p to 333p ‘in order to reflect the lower UK trading margin in H2 and further risk to profit forecasts in 2014/15’ (shares were down yesterday at 322p).
‘In our view Tesco’s investor seminar imparted little new information on how the c83% of UK sales that are currently underperforming the grocery market, are going to recover,’ he said. ‘This is despite 33% of the store estate already being refreshed and many key own label ranges relaunched in 2013.’
Dennis said management ‘still has a lot of explaining to do over the fall in the UK trading margin’ and Tesco needs to address its UK pricing policy.
‘Arguably we see more downside risk in the group profits…The only relief factors for Tesco’s shareholders is the prospect of a held dividend and that Tesco UK is on a small discount to its peers.’
2014 is looking bright for Travis Perkins
Builders merchant Travis Perkins (TPK.L) has convinced Liberum that it can turn round its business thanks to stronger markets and a new management team.
Analyst Charlie Campbell maintained a ‘buy’ recommendation and a target price of £22.20 on the shares (shares were down nearly 2% yesterday at £19.25).
‘We believe that Travis Perkins’ shares are attractive because we can see markets starting to accelerate and we back the new management team to deliver the self-improvement programme,’ he said. ‘Results today confirm that the outlook is improving and we expect management to use the meeting later to persuade a sceptical audience that there is significant scope to improve the business.’
Full year 2013 results showed profits before tax up 12% to £321 million, better than consensus as growth was driven by like-for-like sales ‘without much help from its markets’.
Campbell said optimism was mounting for 2014 as the momentum of H2 2013 moves into H1 2014 and ‘management points to improving lead indicators (especially housing transactions) as a sign of confidence in the outlook for 2014’.