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The Expert View: Mothercare, Persimmon and Blinkx
by Michelle McGagh on Jul 03, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Carillion and Kier.
Bid for Mothercare isn’t ‘compelling’, says Peel Hunt
A bid from a US retailer undervalues Mothercare (MTC) but it could kick-start the recovery process for the stock, according to Peel Hunt.
Analyst John Stevenson retained a ‘hold’ rating and target price of 250p after Mothercare rejected a bid from US retailer Destination Maternity. Shares surged 8.4% to 252p on the news.
‘The potential of a 230p cash offer and 70p equity interest in a new combined entity arguably undervalues Mothercare, although we expect shareholders to demand Mothercare’s board to engage and also set out how they intend to deliver a better return,’ said Stevenson.
Despite four years of turmoil for Mothercare, Stevenson said ‘as a standalone enterprise’ the international division was valued at around £450 million ‘well ahead of the Destination Maternity approach’.
‘While some investors may welcome an exit opportunity, Destination Maternity offers no compelling solution for UK recovery nor any material synergies to leverage,’ he said. ‘Indeed, we see interim chief executive and turnaround specialist Mark Newton Jones as the more likely candidate to deliver UK recovery.’
Carillion upgraded as it ‘turns a corner’
Investec has upgraded support services company Carillion (CLLN) despite concerns about cash and margins in the Middle East.
Analyst Andrew Gibb upgraded the stock from ‘hold’ to ‘buy’ but retained a 380p target price on the shares, which were trading at 343.5p at yesterday's close.
‘The group has had a positive start to the year in terms of new contract wins and the net debt position is now likely to be better than we expect,’ he said. ‘In our view, the shares look like good value on just 9.7 times full-year 2014 price earnings, underpinned by a secure and growing dividend.
While the headline growth is likely to be muted in the near term, we believe number have now troughed and upgrade to “buy”.’
He added that although the market was challenging the company had ‘turned a corner’.
Undervalued Persimmon placed under review
Housebuilder Persimmon (PSN) has been placed under review by Shore Capital as it believes the stock looks undervalued.
Analyst Robin Hardy placed the stock ‘under review at £12.98’ from ‘hold’ following strong trading in the first half of its financial year with completions up 28% and forward sales up by the same amount. Shares were trading at £12.92 at yesterday's close.
He said there was ‘something of a “wait and see” tone here while overall remaining positive’.
‘Valuation here is more complex but the stock looks undervalued – the high level of capital return running until 2021 makes valuation of Persimmon trickier,’ said Hardy. ‘Is the rump business less valuable than a business holding onto its cash and re-investing or does the discipline involved in making the capital return create higher value earnings? We tend to think the latter,’ he said.
He added that the stock ‘now looks more like a buy so the “hold” recommendation is under review’.
Kier’s 2020 vision to provide a boost for investors
Construction and property company Kier (KIE) is planning to set a new 2020 target for the business that will push up earnings per share.
Liberum analyst William Shirley retained a ‘buy’ rating and a target price of £19.15 on the shares, which were trading at £18.29 at yesterday's close.
He was impressed by the contract win rate and strong pipeline plus ‘signs that risks are reducing’. The new 2020 target is also a buying opportunity, said Shirley.
‘Kier have set out a new target of 10%-plus earnings per share growth to 2020, implying 2020 earnings per share of more than 185p,’ he said. ‘Kier is well run and prudently accounted, there is hidden value in property and strong earnings growth being driven by constructions and the May Gurney acquisition.’
Blinkx share price takes another hit, but can it recover?
A surprise trading update from video search company Blinkx (BLNX) has pushed the share price of the stock even lower.
Jefferies analyst David Reynolds retained a ‘hold’ recommendation and a target price of 190p on the shares after the company warned earnings for the first half of its financial year would be $5 million below management expectations. He said the warning was ‘not a good sign’. Investors agreed, with the shares crashing on the news. They ended 45% down at 36p yesterday.
‘Before [yesterday’s] reaction the stock price had dropped 67.8% year to date recovering slightly over the past couple of weeks,’ he said. ‘Arguably with ill feeling towards the company still lingering since earlier news flow, the stock may already have some form of buffer baked in, however the market is a fickle beast and this may just be seen as another issue with being such a black box.’