The Expert View: Marston's, Monitise and Invensys

Our daily round-up of analyst recommendations and commentary, featuring Marston's, Monitise, Chi-Med, Invensys and RSM Tenon.

Key stats
Market capitalisation	£356m
No. of shares out	1,143m
No. of shares floating	834m
No. of common shareholders	not stated
No. of employees	321
Trading volume (10 day avg.)	2m
Turnover	£36m
Profit before tax	£-16m
Earnings per share	-2.11p
Cashflow per share	-1.69p
Cash per share	1.92p

*Correct as at 29 Nov 2012

Monitise seeks new money to fund expansion

Brendan D’Souza, technology research analyst at Seymour Pierce, maintained his ‘buy’ rating and 60p price target on Monitise after the mobile banking systems developer confirmed a press report that it was seeking to raise up to £100 million from institutional and strategic investors, and was considering a move from AIM to the main market.

News of the potential placing of new shares knocked nearly 9% or 3p off Monitise’s share price, which closed at 30.5p, valuing the company at £351 million.

Although pricing details were not available, D’Souza estimated the placing could dilute existing shareholders by as much as 20%. Although this was ‘never good news’ D’Souza said the company was right to step up investment in its mobile banking platform in response to growing demand from financial institutions.

The analyst added: ‘Monitise has been focused on mobile banking, money and payment offerings since its founding in 2003. The company’s success at growing revenues has been due to this first mover advantage combined with partnering with financial institutions, rather than going taking a direct approach. A rapid growth of smart phone sales in developing markets and increased mobile penetration in emerging markets continue to drive demand for Monitise’ solutions.’

Monitise is a top 10 holding of Cavendish Opportunities, a smaller companies fund run by Citywire AAA-rated Paul Mumford.

Key stats
Market capitalisation	£2,499m
No. of shares out	815m
No. of shares floating	812m
No. of common shareholders	not stated
No. of employees	20959
Trading volume (10 day avg.)	2m
Turnover	£2,539m
Profit before tax	£104m
Earnings per share	12.78p
Cashflow per share	21.25p
Cash per share	28.80p

*Correct as at 29 Nov 2012

City cheers Invensys rail deal

Invensys enjoyed several analyst upgrades yesterday – and a sharp share price rise – following the British engineering group’s announcement that it was selling its rail business to Siemens.

The £1.7 billion deal allows the company to return cash to shareholders and fix its pension deficit.

Analysts at Nomura, who have a ‘buy’ rating on Invensys shares, upped their target price to 370p, saying: ‘The simplification of the group structure should reduce any conglomerate discount, and the UK pension solution reduces funding uncertainty, which makes the group’s historical 20-25% discount to the sector seem unjustifiable to us.’

Charles Stanley upped its recommendation on the shares from ‘hold’ to ‘accumulate’. Analyst Rae Ellingham commented: ‘The transaction is expected to create a more focussed industrial software, systems and control equipment business with higher margins and exposure to higher growth markets.’

Key stats
Market capitalisation	£716m
No. of shares out	571m
No. of shares floating	552m
No. of common shareholders	not stated
No. of employees	12000
Trading volume (10 day avg.)	1m
Turnover	£682m
Profit before tax	£69m
Earnings per share	12.03p
Cashflow per share	19.28p
Cash per share	14.56p

*Correct as at 29 Nov 2012

Marston's results ahead of market expectations

Brewer and pub group Marston’s added 0.9p, or 0.7%, to 125p in Thursday trade following the release of its full-year results in which underlying profit before tax rose 9.2%, slightly ahead of market expectations.

However it reported an £135 million pre-tax loss for the year and was forced to write down the value of some of its freehold and leasehold pubs.

It is focusing on selling more food in its pubs, which now makes up 44% of its sales, and like-for-like sales increased 2.2% over the year.

Jonathan Jackson, head of equities at Killik & Co. commented: ‘The results were very reassuring, and highlight the continued good progress being made by the group with its strategy. The group has made an encouraging start to the new financial year – over the last eight weeks, managed like-for-like sales grew 2% and tenanted and franchised profits grew 3% – and continues to out-perform the peer group.

‘Returns on capital are improving, helped by the allocation of capital to higher return new builds and the partial link of management compensation to returns. The stock currently trades on 9.5x September 2013 earnings, with the potential for upgrades driven by the new-build programme and the turnaround of the tenanted estate. While we remain positive on the long-term outlook for the company, we believe that following a strong run so far this year, up 35%, the stock is due a pause for breath.’

Key stats
Market capitalisation	£237m
No. of shares out	52m
No. of shares floating	15m
No. of common shareholders	not stated
No. of employees	not stated
Trading volume (10 day avg.)	0m
Turnover	104m USD
Profit before tax	0m USD
Earnings per share	0.01 USD
Cashflow per share	0.07 USD
Cash per share	0.65 USD

*Correct as at 29 Nov 2012

Chi-Med makes an ‘inspired choice’

Hutchison China Meditech, the AIM-listed pharmaceutical and healthcare group, has made an ‘inspired choice’ in partnering with Nestle in a joint venture says analyst Savvas Neophytou.

Neophytou, of Panmure Gordon, is among City analysts welcoming the deal with upgrades to Chi-Med’s shares.

Under the joint venture to develop medicinal products from botanical plant origins, Chi-Med will contribute rights to its botanical library and R&D platform, while Nestle will bring the financial readies (no financial details have been provided) .

‘Through the formation of a JV, we believe Chi-med shareholders stand to accrue more value than a traditional licensing deal,’ commented Neophytou. ‘We remain buyers of the stock and re-iterate our 600p price target’.

Over at Edison, analysts Franc Gregori and Robin Davison say the shares remain undervalued as the deal removes a major uncertainty for Chi-Med, allowing the group in particular to develop HMPL-004, an anti-inflammatory derived from a traditional Chinese medicine botanical that successfully completed Phase IIb trials in inflammatory bowel disease..

Guillaume van Renterghem of UBS also raised his target price on Chi-Med shares after the deal to 520p from 470p, keeping his buy rating.

Key stats
Market capitalisation	£20m
No. of shares out	323m
No. of shares floating	224m
No. of common shareholders	not stated
No. of employees	3026
Trading volume (10 day avg.)	0m
Turnover	£208m
Profit before tax	£-88m
Earnings per share	-27.31p
Cashflow per share	-21.91p
Cash per share	0.00p

*Correct as at 29 Nov 2012

'The beginning of the end' for RSM Tenon Group

Analysts at Numis Securities have pulled their rating on crisis hit accountancy firm, RSM Tenon. The group reported an £87 million loss in 2012, has high debts, and is facing legal action after the closure of its specialist tax planning division, Premier Strategy, in May 2011.

James Hamilton, analyst at Numis, said he believes the group balance sheet needs restructuring and suspended his rating on the stock as he has serious doubts over the company’s value.

Hamilton added: ‘Tenon is loss making, it saw its top line decline by 16% last year and it has generated less than zero cash over the past twelve years.

‘Given the substantial operational and financial gearing we feel unable to accurately assess the current day equity value of the group and so our target price and recommendation are suspended. We do however believe that the current day equity value is likely to be incorrect with RSM Tenon's equity either being worth a multiple of the current market valuation or zero.’ Shares gave up 0.25p, or 4%, to 6p in Thursday trade.