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The Expert View: Lloyds, Prudential and Mothercare
by Harry Brooks on Nov 23, 2012 at 05:01
Our daily round-up of analyst recommendations and commentary, also featuring Young & Co's Brewery and SThree.
Our daily round-up of analyst recommendations and commentary, featuring Lloyds, Prudential, Mothercare, Young & Co's Brewery and SThree.
Investec says Lloyds isn't out of the woods yet
Ian Gordon, analyst at Investec, has reiterated his 'sell' recommendation on Lloyds (LLOY.L), warning that the market hasn't fully digested how much it'll cost the bank to put right its past mistakes.
The analyst noted that Lloyds is making progress selling off its non-core assets, which have fallen from £194 billion on 31 December 2010 to £110 billion at the end of September.
However, he said many of the sales have been made in what could be termed easier product categories such as treasury assets, with about 60% of the remainder requiring the disposal of non-retail asset classes.
He also said the bank's exposure to Irish mortgages agreed at the height of the property boom were a worry. 'We do not know the loan-to-value profile of Lloyds’ Irish exposure.
'RBS’s residential mortgage portfolio at Q3 showed 60% of properties in negative equity, of which 34% had an LTV in excess of 130%. Given the profile of the build-up of Lloyds’ exposure around the peak of the property cycle, we suspect that it will be even worse.'
Shares in the group, for which Gordon has a target price of 36p, closed at 45.95p on Thursday, up 0.21p or 0.46%.
Berenberg Bank lifts target price for Prudential
Matthew Preston, analyst at Berenberg Bank, has increased his target price for long-term savings giant Prudential (PRU.L), saying its US business is underappreciated by investors in spite of impressive growth figures.
Although Prudential’s Asian business has no shortage of plaudits, Preston said the investor session due to be held in New York at the end of the month would shine a light on the relatively overlooked US arm, Jackson National (JNL).
'JNL remains an underappreciated gem, with new business sales and profits having grown in excess of 100% and 200% respectively over the last five years,' he said. 'Despite its impressive track record, we believe that investors are yet to fully appreciate the strengths of this business.'
Preston's target price rises from £10.40 to £10.80.
Shares in the group closed at 881.91p on Thursday, up 1.91p or 0.22%.
Seymour Pierce reiterates 'sell' on Mothercare
Kate Calvert, analyst at Seymour Pierce, has reiterated her 'sell' recommendation on mum and baby clothes retailer Mothercare (MTC.L) in spite of first-half figures that were significantly better than she'd pencilled in.
Excluding exceptional items Mothercare lost £600,000 over the first half, down from £4 million in the same period last year and well below the £2 million loss she forecast. Like-for-like sales in the UK fell 3.4%, but international sales were up 4.4%.
The company's chief executive, Simon Calver, said the turnaround is now in evidence: 'We are starting to see the impact of our actions to ensure that Mothercare can deliver what our customers want - better value, choice and service.'
However, Calvert maintained that getting the ship back on course is going to be tough work. 'We do not believe Mothercare is an easy fix and brand repositions tend to take longer than expected. It will be difficult to make Mothercare relevant again for the modern mother as it has strong competition from Amazon and the supermarkets,' she said.
Shares in the group closed at 303p on Thursday, up 11p or 3.77%.
Peel Hunt says 'buy' Young & Co's Brewery
Nick Batram, analyst at Peel Hunt, has reiterated his 'buy' recommendation on brewer to pubs group Young & Co's Brewery (YNGA.L) on the back of a solid set of first-half figures.
Pre-tax profits over the past six months came in at £13.9 million, up 11% on a year ago, and revenues rose the same percentage to hit £100.2 million. The dividend was increased 5.1% to 7.02p.
'H1 was not straightforward given sporting and royal events and the dire weather,' Batram said. 'However, it is clear that the strategy to focus on a high quality premium offering continues to deliver for the group.
'This strategy and together with an exceptional estate makes Young’s a core buy in the sector.'
Shares in the group closed at 727.5p on Thursday, up 34p or 4.9%.
Shore Capital downgrades SThree to 'hold'
David O’Brien, analyst at Shore Capital, has downgraded recruitment business SThree (STHR.L) from 'buy' to 'hold' ahead of what he expects to be a downbeat trading update at the end of the month.
SThree, which focuses on finding staff for IT, oil industry and finance roles, has been O’Brien's favoured medium-sized business in the sector for some time, but he's opted to downgrade the shares as he thinks it's going to stuggle to beat last year's results.
'The comparative quarter last year was 13.3% higher on a net fee income basis than Q4 2010 (albeit on a slowing trend), making progress difficult,' he said.
'The group’s permanent deal pipeline at the end of Q3 showed static volumes year-on-year, although management did go on to say that fee levels had improved owing to strong performances in energy & resources and pharma & biotechnology and offsetting the continued weakness in the global banking and finance markets.'
Shares in the group closed at 300p on Thursday, down 3.5p or 1.15%.