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The Expert View: Mothercare, HSBC & Bovis Homes
on Feb 25, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, including Bunzl and Hiscox.
Calver’s exit from Mothercare a ‘positive’
Peel Hunt has maintained its ‘hold’ on Mothercare (MTC.L) after chief executive Simon Calver announced he was stepping down after less than two years in the post.
Analyst John Stevenson placed a target price of 250p on the shares, which fell 4.5p or 1.8% to 252p at the news. He said the resignation of Calver following a profits warning last month might be good for the business.
‘Calver was a brave appointment for Mothercare, lacking in any front line retail experience, reflecting the group’s concern that Mothercare was not focused enough on the shift into omni-channel retail,’ he said.
‘Ultimately as the recovery strategy came unstuck over peak trading, the issues facing Mothercare UK going forward are very retail specific focused on ranging, gross margin delivery and require the skill set of a retail operator, in our view.’
While Stevenson said ‘investors should regard the change in leadership as a positive development’ he preferred Topps Tiles or Halford for a retail recovery.
Canaccord cuts HSBC target after full-year miss
Canaccord Genuity has slashed its target price for HSBC, but maintained its ‘buy’ rating on HSBC after the global bank’s full-year profits missed forecasts.
HSBC shares yesterday slid 3.4%, or 22.5p, to 631.8p after a 9% rise in 2013 pre-tax profits to $22.6 billion fell short of the $24.3 billion analysts had expected.
Canaccord analyst Arun Melmane cut the target price to 750p from 825p, explaining there would be slower growth in the bank’s net asset value given the lower outlook for revenues in Europe, Asia Pacific and Latin America. He estimated earnings per share would fall 18% this year.
HSBC lifted the fourth quarter dividend by 28% from 14c to 18c a share. Nevertheless, Melmane detected management’s caution towards depleting capital too much with core tier 1 ratio at 10.9%, up from 9.5% a year ago.
‘Emerging market volatility is expected to continue into 2014 and revenues may continue to be under pressure. We expect management to focus on costs to right-side the returns equation for shareholders,’ Melmane said.
Bovis means business
Liberum analyst Charlie Campbell had no problem retaining a ‘buy’ on Bovis Homes (BVS.L) and a target price of 911p after full-year profits leaped 48% to £78.8 million.
Bovis and larger rivals Persimmon and Barratt Developments have enjoyed a surge in business following the government’s aid to help first-time buyers.
Last year Bovis completed the sale of 2,813 homes and plans to sell at least 3,400 this year, with a medium term annual target of 4,000 to 5,000 units.
‘Bovis Homes’ full-year results have revealed that 2014 has started very strongly, with sales rates up 60% and sales prices 2% better than its expectation,’ said Campbell. ‘This gives good visibility for further improvements in returns in 2014, which should lead to continued re-rating against the sector as its returns catch up with the peer group.’
Campbell added that Bovis trades at a 24% discount to the sector which is currently justified but ‘Bovis’ return on equity should steadily rise as volumes come through and margins recover further’.
Bovis shares gained 22p or 2.4% to 922p.
Investec goes a bundle on Bunzl
Investec has maintained its ‘add’ recommendation on Bunzl (BNZL.L) but put its target price under review after shares in the outsourcing giant jumped nearly 6% after its full year results.
Bunzl shares shot up 88p to £15.71 as the company declared a 16% rise in pre-tax profits with double-digit growth in revenues, earnings and the dividend.
Analyst Andrew Gibb said: ‘With margin and cashflows remaining robust and further acquisitions likely during the course of FY14, the outlook remains positive,’ said Gibb.
‘Currency will clearly be a headwind to contend with in FY14 but the group anticipates that each of its businesses should grow.’
He added that Bunzl continues to be ‘a strong and well-managed business which consistently delivers strong returns from its strategy of consolidating organic growth through bolt-on deals’.
Hiscox plans growth in 2014
Insurer Hiscox (HSX.L) may not have grown profits in the UK due to the severe flooding but its European business has ‘delivered profit uplift’, according to Nick Johnson of Numis.
Johnson retained a ‘hold’ and a target price of 675p after European sales increased £11 million in 2013. International business has also been growing strongly and the insurer sees opportunities in further retail markets.
‘This is another strong result from Hiscox, with on-going progress in building the group’s retail business on a number of fronts,’ said Johnson. ‘The company says that the second year with special dividends should not be seen as a pattern, given that it is working hard to deploy capital in value creating sectors.’
Hiscox shares dipped 3p or 0.5% to 653p