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The Expert View: Marks and Spencer, Brewin Dolphin and Smith & Nephew
by Michelle McGagh on Jul 09, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Bovis and Sportech.
Wait before jumping into Marks & Spencer shares, says Shore Capital
Marks & Spencer (MKS) has delivered ‘another disappointing update’ in its first qaurter trading statement.
Shore Capital analyst Clive Black placed a ‘hold at 435p’ rating on the shares as general merchandising continues ‘to weigh heavily upon the group’s growth prospects’. Shares fell 1.2% to 5.3p yesterday on the disappointing results.
‘Whilst there has been management change with respect to the general merchandising offer and considerable third party support of the last two clothing seasons, such plaudits have not translated into satisfactory sales growth, so leading to a series of trading disappointments and downgrades,’ said Black. ‘The dot com fiasco, and this is what it looks like… leaves a bitter taste for investors to our minds.
‘As such, it will still take a considerable amount of time for M&S to demonstrate that it can break the mould, grow its non-food offer, maintain market share and build earnings. Investors may be well advised to wait for some clear evidence of such an improvement before buying the stock.’
Sportech wins ‘significant’ UK Tote contract
Gaming group Sportech (ROD) has won a 10-year deal to supply betting technology to UK Tote.
Peel Hunt analyst Nick Batram said the contract was ‘significant’ and retained a ‘buy’ rating and target price of 113p on the shares, which were trading at 91p at yesterday's close. He expects the deal not only to be financially beneficial but provide a showcase for Sportech’s technology.
‘Sportech has won a 10-year contract to supply the UK Tote with a comprehensive suite of betting technology products. As well as the financial benefits, this could prove a landmark deal, demonstrating the full suite of Sportech’s new products to an international market place,’ he said.
‘Furthermore, we see it as recognition of the increased investment made within the racing division over the last few years.’
Another mixed quarter for Smith & Nephew
Smith & Nephew (SN), maker of artificial hips and orthotics, is expected to produce ‘another mixed quarter’.
Numis analyst Sally Taylor retained a ‘hold’ rating and target price of £10.00 on the shares ahead of second quarter results. Shares were trading at £10.18 at yesterday's close.
‘We expected another mixed quarter at Smith & Nephew with one month’s benefit from the Arthocare acquisition, some early tailwinds from disruption at Zimmer/Biomet offset by a continued impact of woundcare destocking and 1-2% headwind from one less sales day,’ she said.
‘We believe Smith & Nephew’s share price continues to reflect an element of bid premium following speculation and subsequent public denial on 28 May that Stryker could be interest in an acquisition.’
Brewin Dolphin ‘on track’ for efficiency and growth
A management update has convinced Liberum analysts that wealth manager Brewin Dolphin (BRW) is on track to improve efficiency and grow the business.
Analyst Justin Bates retained a ‘buy’ rating and a target price of 379p on the shares, which were trading at 310p at yesterday's close.
‘The new chief executive presented to the sales teams at Liberum [on Monday night]. He gave a very honest account of the challenges faced by the business and the progress being made as part of its change programme,’ said Bates. ‘If management’s targets are achieved – they appear to be on track – the investment case looks compelling.’
The key focus of management’s efforts has been to improve operational efficiency to hit a profit before tax margin of 25%, compared to just 15% in 2011. When that has been achieved, growth will become the next target.
‘Once the organisational plumbing is fixed and systems functioning as desired, the team can then confidently turn attention to asset gathering,’ said Bates.
Bovis delivering value and volume
The size of housebuilder Bovis (BVS) is giving it the edge over larger rivals, allowing it to secure value and volume.
Jefferies analyst Anthony Codling said the company was ‘having its cake and eating it’ and retained a ‘buy’ rating and target price of £11.83 on the shares, which were trading at 778.5p at yesterday's close.
‘Whilst others choose between value and volume, Bovis has been able to secure both,’ he said. ‘Volume growth of 54% might suggest that value is being given away, but annual selling price growth of 11% implies it is not.
‘In our view, the group is outperforming, but rather than cashing in, we believe that it will close the 2014 books early and start 2015 with an enviable position. Whilst our estimates are not rising, the embedded value within the group most certainly is.’