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The Expert View: Lloyds, Direct Line and WS Atkins
by Harry Brooks on Mar 04, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Travis Perkins and Laird.
Our daily round-up of analyst recommendations and commentary, featuring Lloyds, Direct Line, WS Atkins, Travis Perkins and Laird.
Don't expect a dividend from Lloyds anytime soon
The prospect of a dividend from loss-making Lloyds (LLOY.L) remains distant, Canaccord Genuity analyst Gareth Hunt has warned.
Lloyds touted ‘substantial progress’ with a 5% reduction in costs as part of its restructuring programme, and underlying pre-tax profits of £2.6 billion beat market forecasts. The pre-tax loss, however, still came to £570 million, down from a £3.54 billion loss the previous year.
'We think they are likely to be some way off a dividend resumption,' Hunt said. 'Unless the regulator allows an earlier resumption of ordinary dividends we do not see much valuation support/upside at current share price levels.'
Shares in the group closed at 52.6p on Friday, down 1.8p or 3.4%.
Direct Line's success already priced in, Nomura says
Direct Line (DLGD.L)'s shares are already pricing in restructuring potential, according to Nomura analyst Fahad Changazi, so they only get a lukewarm 'neutral' rating from him.
Last week's full-year results from the car insurer spun out of Royal Bank of Scotland came in ahead of expectations, with an annual operating profit of £461.2 million, up 9% on the year and ahead of the £454 million pencilled in by analysts.
'Direct Line continues to deliver good results, which provide greater comfort on the group achieving its targets set out at the time of the initial public offering, Changazi said.
'However, at this stage, given consensus has incorporated management targets into estimates, we believe the current potential for restructuring is largely reflected in the share price.'
Shares in the group closed at 209p on Friday, down 1.5p or 0.7%.
WS Atkins to sell UK highways business
JP Morgan analyst Victoria Prior has increased his target price for engineering and design business WS Atkins (ATK.L) on news that it's to sell its UK Highway Services business.
The firm is selling the unit to Skanska UK, a subsidiary of the Swedish multinational project manager Skanska AB, for a total of £18 million. The sale's expected to go through on 31 May, two months into Atkins’ 2014 financial year.
'In our opinion, this is an important step in shifting the focus of the group towards higher growth sectors,' Prior said. Her target price rises from 893p to 920p, and she reiterated her 'overweight' recommendation.
'It also provides additional funding capacity for Atkins to pursue non-organic growth. We estimate the UK Highway Services business accounts for approximately 10% of group revenue, but has considerably lower margins than other Atkins businesses, and so accounts for only approximately 5% of group earnings before interest and taxes.'
Shares in the group closed at 890p on Friday, up 21.5p or 2.5%.
Time to sell Travis Perkins?
Building supplies outfit Travis Perkins (TPK.L) is going to struggle to grow much given the subdued market, according to Berenberg Bank analyst Michael Watts, who reiterated his 'sell' recommendation.
Earnings over 2012 came in roughly in line with expectations, but Watts sounded pessimistic. 'The outlook for underlying activity remains difficult through H1 2013 with monthly trading impacted by sizeable base effects.
'Management cites reasons for optimism about H2 – improving mortgage lending and rising housing transactions – but visibility is still low.'
With the shares up 16% in the year to date and depressed activity raising competitive pressures in the industry the analyst suggested that shareholders take the opportunity to offload.
Shares in the group closed at £12.97 on Friday, up 23p or 1.8%.
Investec puts Laird's target price under review
Investec analyst Thomas Rands has put his target price for Laird (LRD.L) under review, saying the sparse detail in the latest trading update offers few clues on how the electronics industry supplier can outpace its rivals.
Preliminary results showed group revenues up 6% year-on-year (YoY) to £520.2 million, missing the analyst's expectation of £528.7 million. Group margins improved 110 basis points to 13.1%, however, with adjusted pre-tax profits up 17% at £60.7 million.
'Lower revenues and higher margins offset to achieve an in line set of results which were significantly helped by revenues to the largest customer growing 44% YoY,' Rands said.
'With a limited amount of forward looking detail we struggle to see how FY13E revenues will grow faster than the sector. We expect minimal changes to our FY13E forecasts and thus put our target price [formerly 220p] under review and maintain our hold recommendation.'
Shares in the group closed at 249p on Friday, up 0.6p or 0.2%.