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The Expert View: Lloyds, Antofagasta & Glencore
by Michelle McGagh on Apr 15, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Jardine Lloyd Thompson and Real Estate Investors.
TSB sale will only be ‘minor’ benefit to Lloyds
Speculation that Lloyds (LLOY.L) is to float TSB on the London Stock Exchange in the middle of May is raising questions about the valuation being attached to the offshoot bank.
Espirito Santo Investment Bank analyst Shailesh Raikundlia maintained a ‘sell’ recommendation and placed a ‘fair value’ price of 70p on Lloyd’s shares. Shares were trading down 2.9% yesterday at 70.8p.
‘[Reports] suggest that investors, some of whom have received early presentations from TSB management, are said to be questioning the valuations being attached to the business,’ said Raikundlia. ‘Although the original valuation was thought likely to range from £1.5 billion to £2 billion, it is understood that concerns about funding could reduce the value to less than TSB’s £1.5 billion book value. If Lloyds cannot reach as high a price as one hoped, it is likely to sell off perhaps just 30% of the new bank’s shares at this stage, rather than the 50% previously mooted.’
He added the sale of TSB would have only ‘a minor impact on the group’s profit and loss and balance sheet’.
JLT upgraded as it gears up to take more market share
Numis has upgraded reinsurance broker Jardine Lloyd Thompson (JLT.L) on ‘refreshing forecasts’ that could establish it as a major player in the insurance industry.
Analyst Nick Johnson upgraded his recommendation from ‘hold’ to ‘add’ and increased the target price to £11.90 – shares traded up 2.1% at £10.91 yesterday – despite reducing earnings per share forecasts down 5% for 2014 and again for 2015. However, even revised forecasts equate to trading earnings per share growth of +11% for 2014 and +14% for 2015.
‘In our view the Towers Watson acquisition at the end of 2013 is a significant step in positioning JLT as an equal alternative to the dominant big three reinsurance brokers, providing a strong platform to increase market share from around 7% currently,’ said Johnson. ‘We expect the division to account for a large proportion of group earnings growth over the medium term.’
Antofagasta’s bumper dividend payout reduces target price
Chilean-based copper miner Antofagasta (ANTO.L) has had its target price reduced on the back of a higher than expected dividend distribution and lower 2013 earnings.
Peel Hunt analyst Maurice Mason retained a ‘buy’ recommendation but reduced the target price from 982p to 928p. Shares were up 0.99% at 833p yesterday.
‘We adjust our target price for Antofagasta downwards because of unusually high dividend distribution and lower than anticipated earnings for 2013,’ said Mason. ‘Lower earnings were largely as a result of a higher tax bill associated with the withholding of taxes on dividends, with the net effect being a lower cash balance and higher tax charges. This has resulted in our revising our target price downwards while maintaining our “buy” recommendation.’
The company has announced it will distribute 142% of earnings, totalling almost a $1 billion, to deliver a dividend yield of around 7%.
Glencore Xstrata copper mine sale will invoke caution for rest of year
Investec analyst Marc Elliott has added a few pennies to his target price for Glencore Xstrata (GLEN.L) after it confirmed the sale of Peruvian copper mine Las Bambas.
Investec analyst Marc Elliott retained a ‘reduce’ recommendation and increased the target price just 3p from 300p to 303p on the back of the sale. The shares were up 0.96% at 314p in yesterday’s trading.
Glencore sold the site to a consortium for what Elliott believes is ‘at the upper end of market expectation of US$5-6 billion’ and the buyers will also pay all capital expenditure and development costs incurred from 1 January 2014 until the transaction is finished at the end of Q3.
‘We have updated our numbers accordingly, adding 3p to our target price, having previously assumed a sale price of US$5.5 billion,’ said Elliott. ‘Until the transaction is finalised, we would expect Glencore Xstrata to be cautious on advancing new significant transactions in order to ensure the company’s credit rating remains unchanged and the balance sheet doesn’t come under undue pressure, particularly against the background of volatile commodity pricing.’
Real Estate Investors poised to benefit from regional property recovery
The much-anticipated increase in regional property markets will benefit Real Estate Investors (RLE.L), which is ready to exploit the opportunity, according to Liberum analyst Jon Stewart.
Stewart has retained a ‘buy’ recommendation and increased the target price from 58p to 61p on the shares following a recent £20 million finance raising exercise that has allowed the company to buy its tenth Birmingham-based office building. However, the shares were trading down 3.8% at 48p yesterday.
‘REI offers a unique play on the nascent recovery in regional property markets, where yields have begun to compress from near-record highs,’ said Stewart. ‘The £20 million placing gives the company firepower to exploit this opportunity and the means to transform profitability. We forecast 29% growth in net asset value over the next three years which justifies a re-rating closer to book value in our view.’
He predicted 23% total shareholder return over the next 12 months.