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The Expert View: Ladbrokes, Aggreko and Babcock
A roundup of analysts' commentary on shares, also including Kazakhmys and Moss Bros.
Our daily round-up of analyst recommendations and commentary, featuring Ladbrokes, Aggreko, Babcock, Kazakhmys and Moss Bros.
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Ladbrokes: ‘beyond disappointing’
Analysts lined up to cut their forecasts for Ladbrokes (LAD.L) shares yesterday after the bookies announced another profit warning.
Among them was Canaccord Genuity analyst Simon Davies, who cut the stock to ‘hold’ from ‘buy’ with a reduced target price of 190p.
Investors and analysts hadn’t expected good news, but were nonetheless miffed by the company's forecast that full-year operating profits of between £10-14 million would be about half of what had been expected.
‘This is the third profits warning from Ladbrokes so far this year and while there has been some impact from external factors - weather, results, intensifying Machines competition in the High Street - the Digital performance has been beyond disappointing, while retail appears to be underperforming the competition,’ commented Davies.
He pointed to one saving grace: the betting firm’s management has committed to holding the dividend both in 2013 and in 2014. ‘The 4.8% dividend yield should provide some support’, said Davies.
The shares dropped 7.6% to 173p yesterday.
APR tipped to catch up with expensive Aggreko
Looking to add shares in a temporary power provider to your portfolio? APR Energy should catch up with ‘expensive’ competitor Aggreko (AGG.L), say analysts at Morgan Stanley.
The bank’s researchers rate FTSE 100 listed Aggreko as ‘underweight’ with a price target of £13.00.
They say Aggreko’s share price reflects expectations of ‘a continuation of its supernormal profits and returns from contracts that are being phased out’. But the company is exposed to ‘increased competition, pricing pressure and low contract growth’.
On APR though, a smaller company, Morgan Stanley say investors should be ‘overweight’. They see share price gains of 40% to reach their £14.00 target price. ‘APR Energy’s exclusivity in turbines confers strong growth, improving returns and market share gains.’
What’s more, ‘Q4E revenue based on contracts already won should prove a catalyst for consensus upgrades, while improving consistency of reporting should close the valuation gap versus Aggreko’.
Shares in Aggreko ended down 0.4% on Thursday at £15.86. APR Energy rose 1.6% to 967p.
'Buy' Babcock International, Berenberg Bank urges
Today's capital markets event from Babcock International (BAB.L) has the potential to catalyse the shares, according to Berenberg Bank, which has a 'buy' recommendation in place.
The investor event will focus on the marine and technology (M&T) division, which analyst Simon Mezzanotte said was among the engineering support firm's most strategically important units.
'The M&T business epitomises Babcock’s strategy at its best: operating in the high-value segment of the outsourcing industry where the criticality of the service offered and its complexity are higher,' he said.
'The division also gives the company (and investors), excellent visibility (a third of group revenues are effectively recurring), something which is often in short supply in the world of outsourcing.'
A price to earnings ratio of 15.2x puts the stock at the upper end of its historical range, the analyst said, but it's still discounted compared with its rivals in the sector.
Shares in the group closed at £11.93 on Thursday, up 2p or 0.2%.
Kazakhmys: not for the faint of heart
Westhouse has initiated Kazakhmys (KAZ.L) with an 'add' recommendation, arguing that if the copper market picks up the miner will take off.
'Kazakhmys’ earnings are highly leveraged to both a recovery in the copper price and to management’s ability to cut higher-cost production and successfully implement the optimisation programme,' analyst Nick Hatch said.
'We have a target price of 345p and initiate coverage with an Add recommendation. Investors will, however, need to have confidence in copper markets and price recovery; with its poor profitability Kazakhmys is not for the faint-hearted.'
Shares in the group closed at 286.7p on Thursday, down 6.2p or 2.1%.
Self-help at hand for Moss Bros
Peel Hunt has reiterated its 'buy' recommendation on shirt and tails specialist Moss Bros (MSB.L), saying it has a range of compelling self-help initiatives at hand plus significant cash on the balance sheet.
Yesterday's interims showed pre-tax profits level at £2.2 million, margins down 0.7% to 59.7% and the interim dividend up 50% on last year at 0.3p.
Analyst John Stevenson said online development, direct sourcing, store refurbs and a new marketing strategy all hold the promise of stronger sales ahead.
'E-commerce remains one of the most significant medium term opportunities for Moss Bros. Aside from the launch of the new websites this year, the group’s new CRM software will go live in spring next year, a major development given the group’s rich hire data,' he said.
'With self-help initiatives taking greater effect, we reiterate our Buy stance.'
Shares in the group closed at 68.5p on Thursday, down 3.7p or 5.2%.