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The Expert View: Morrisons, Speedy Hire and Cineworld
by Michelle McGagh on Feb 13, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also featuring United Drug Group and Wood Group.
Our daily round-up of analyst recommendations and commentary, featuring Morrisons, Speedy Hire, Wood Group, United Drug Group and Cineworld.
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Morrison bid rumours may mark up shares
Rumours that the family behind supermarket Wm Morrison (MRW.L) is planning on selling its stake could lead to bid interest for the struggling retailer.
Analyst Clive Black maintained a ‘hold’ recommendation and a target price of 238p (current price 244p) on the shares but said that ‘we would expect a number of serious private equity investors to be running the rule over Morrison’ on the back of the rumours, which could see the Morrison family give up their 10% stake.
‘There is no confirmation or otherwise of such potential activity at this stage,’ said Black. ‘However, given Morrison’s trading weakness and relatively low valuation, such headlines and potential initiatives are to be expected to some degree at this time.
Black added that shares may be marked up on bid speculation and he would ‘watch matters with interest albeit our central expectation [is] that the status quo will persist for now’.
Sell ‘expensive’ Speedy Hire shares, says Cantor
Vehicle hire company Speedy Hire (SDY.L) is still looking too expensive for Cantor Fitzgerald analyst Sam Thomas who has reiterated a ‘sell’ recommendation.
Thomas placed a target price of 58p (current price 64p) on the shares despite a pick-up in UK and Ireland sales growth in its Q3 trading statement. Business in the Middle East is ‘still running behind expectations’ and no sales growth figure was given for the group as a whole.
However, the company still has to contend with the impending conclusion of an investigation into accounting irregularities in the international division.
Overall, Thomas said the trading statement ‘suggests that expectations for the full financial year will be met’ but ‘we reiterate our sell recommendation. The shares are expensive in our view.’
Fears over third Wood Group profit warning don’t deter Investec
Fears of a third profit warning for energy services company Wood Group (WG.L) have not put off Investec.
Analyst Neill Morton placed a ‘buy’ recommendation and target price of 720p (current price 679p) on the shares even though he said ‘Wood Group’s perceived defensive status unravelled in H2 2013’ due to a ‘rapid slowdown in new project work as its clients look to reduce costs’.
Morton added that the first two profit warnings were a ‘surprise’ considering ‘it should be one of the more defensive stocks in the sector’ due to the way it operates.
‘Is a third profit warning inevitable? In short, we don’t know,’ he said, but added that some parts of the business were more susceptible to a warning than others.
‘Impact on earnings forecasts? Our engineering profit estimates in 2015 could fall a further 34% versus our current forecast. However, at the earnings per share level, this translates into cuts of just 9% and 13% in 2014-15 respectively.’
UDG sells ‘Specials’ arm to focus on international markets
United Drug Group (UDG.L) has announced it is to sell its ‘Specials’ business for £23.5 million, which Jefferies analysts expect to be of ‘long-term strategic benefit’.
Analyst James Vane-Tempest placed a ‘buy’ recommendation and a target price of 385p (current price 335p) on the shares following the sale of the ‘Specials’ business, which only operated in the UK and distributed unlicensed medicines for the community pharmacy and hospital markets.
UDG plans to focus its efforts on offering its services to pharma companies internationally.
‘We view this as a positive strategic step as it allows UDG to focus its resources on Ashfield and Packaging, its core divisions, which the company plans to leverage internationally,’ he said. ‘The overall deal size is small but we expect greater longer-term strategic benefits.’
Cineworld’s deal with Cinema City doesn’t bode well
Cineworld’s (CINE.L) purchase of Cinema City International last month has not been good for the former’s shares and they continue to be a ‘sell’.
Panmure Gordon analyst James Cooke has a ‘sell’ recommendation and a target price of 295p (current price 340p) on Cineworld’s shares as he has concerns about the exposure to emerging markets that the takeover brings.
‘Cineworld’s proposed combination with Cinema City International (CCI) is a good deal for CCI’s shareholders but not for Cineworld’s as evidenced by a c15% fall in its share price since the deal was announced,’ said Cooke. ‘Risk has increased through exposure to ‘emerging’ markets, and therefore currency, whilst the track record of CCI is unimpressive.’
On top of an ‘unimpressive’ deal Cooke said ‘Cineworld’s domestic market continues to disappoint’.