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The Expert View: Legal & General, Wolseley and G4S
A roundup of some of the best analyst commentary on shares, also including Premier Oil and Nichols.
Our daily round-up of analyst recommendations and commentary, featuring Legal & General, Wolseley, G4S, Premier Oil and Nichols.
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Legal & General: much to like but only ‘modest’ gains to come
Morgan Stanley analysts have a lot of good things to say about Legal & General (LGEN.L), the insurance and investment company that recently reported well-received first half trading figures:
- It has an ‘excellent position in the strategically attractive annuity and protection markets’.
- The company’s position in the savings market is ‘on an improving trajectory’.
- Its annuity business ‘is especially attractive given the opportunity to source long-term illiquid assets with attractive spreads.’
- Investment management unit LGIM ‘remains underappreciated’.
- There’s still ‘further upside in L&G’s dividend as cash flow continues to grow’ (the company announced a 22% interim dividend increase in its results two weeks ago).
- L&G’s US life business ‘has started to grow significantly faster in recent periods’.
The analysts have raised their price target to 192p from 184p but keep their ‘equal-weight’ rating for valuation reasons. They see only ‘modest valuation upside’.
Shares in the group closed at 198.4p on Thursday, up 2.4p or 1.2%.
UBS upgrades Wolseley to 'buy'
UBS has upgraded plumbing specialist Wolseley (WOS.L) from 'neutral' to 'buy' on the back of accelerating growth in the US market.
Analysis of US rivals in the same sector indicates that growth should have accelerated into double digits in the quarter to July, analyst Gregor Kuglitsch said.
'Wolseley’s peer group that we track has seen organic growth accelerate by 440 basis points sequentially in Q2,' he noted. 'If the Q1 outperformance of four percentage points persists, growth could be as high as 12.7% although there is historically some volatility around this spread.'
Kuglitsch has a target price of £35 for Wolseley.
Shares in the group closed at £33.25 on Thursday, up 131p or 4.1%.
All eyes on G4S
Wednesday's trading update from troubled security business G4S (GFS.L) should be anything but dull, according to Cantor Research.
'The main question mark surrounding the results is whether Mr Almanza will announce a rights issue to shore up the balance sheet,' analyst Caroline de La Soujeole said. Almanza only took the lead at the company in June, after Nick Buckles stepped down in the wake of the Olympics staffing failure.
G4S is currently facing scrutiny from the government over claims it overcharged for electronically tagging criminals in England and Wales together with rival firm Serco.
'We have a HOLD recommendation as we believe uncertainty over the outcome of the UK Cabinet Office’s investigation into G4S’ government contracts and news on the SFO investigation (so far the SFO has only been asked to consider an investigation) will weigh on the shares,' de La Soujeole added.
Shares in the group closed at 246.1p on Thursday, up 1.5p or 0.6%.
Premier Oil remains a ‘sell’ after disappointing update
Premier Oil (PMO.L) remains a stock to ‘sell’ after the explorer missed expectations in its first half financial update yesterday, say analysts at Liberum.
Reporting profit after tax of $161 million, the company announced a $77.7 million impairment bill and a $1.2 million loss on derivative charges.
Liberum analysts Andrew Whittock and Kate Sloan noted ‘there appear few new disclosures and little reason to change numbers or view significantly’.
‘We remain concerned about the cost of adding new commercial reserves and maintain our 313p PT and SELL recommendation.’
Shares in the group closed at 346.3p on Thursday, down 10.7p or 3%.
Nichols ‘fizzing’ with potential
Nichols (NICL.L), Softs drinks business behind brands including Vimto, is set to benefit from continuing international growth, a ‘sharper commercial focus’ in the UK and reduced promotional activity in its domestic fizzy drinks business, analysts say.
Panmure Gordon’s Damian McNeela and Graham Jones have reiterated their ‘buy’ recommendation on the AIM-listed shares, while upping their target price to £12.30 from £11.70 after the company recently reported a 9% rise in pre-tax profits in the first half of the year.
These results in part showed that the company’s ‘decision to sacrifice promotional volumes to enhance margins was paying off. We expect this strategy to deliver further profit growth in 2H 2013,’ the analysts wrote in a note headlined ‘Still fizzing with potential’.
Recent senior appointments will also help. ‘We believe that the arrival of both Marnie Millard as CEO and Andrew Milne as UK Commercial Director should herald a much sharper commercial focus in the UK,’ the Panmure team say.
Meanwhile Merseyside-headquartered Nichols, which generates a fifth of revenues overseas, has further international growth potential. ‘We estimate that if all International sales generated the same margin as Middle Eastern sales then group operating profit would be c.40% higher than current year forecasts’, the analysts added.
Shares in the group closed at £11.55 on Thursday, up 12p or 1%.