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The Expert View: Paddy Power, Intertek and Bunzl
by Harry Brooks on Aug 29, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including 888 Holdings and APR Energy.
Our daily round-up of analyst recommendations and commentary, featuring Paddy Power, Intertek, Bunzl, 888 Holdings and APR Energy.
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Daniel Stewart upgrades Paddy Power to 'buy'
Daniel Stewart has upgraded Paddy Power (PAP.L) from 'hold' to 'buy' on the back of a strong first-half performance from the betting outfit.
Revenues rose 22% year-on-year, driven by strong growth in the online division, where sales rose 26%. Sales from mobile devices doubled, and these now account for 43% of online revenue.
Although the shares trade on 13x projected 2013 earnings, which analyst Michael Campbell called 'demanding', this falls to 11x by 2014 according to his estimates, which 'doesn't appear overly demanding for a quality business like PAP'.
'Importantly the business has ample firepower to keep growing, is highly cash generative and has fully regulated earnings, which is growing at double digit growth rates,' he added.
Shares in the group closed at 59.9p on Wednesday.
'Sell' Intertek, Shore Capital says
Intertek (ITRK.L)'s surprisingly strong performance in the wake of a disappointing set of interims leaves the industrial safety specialist looking expensive, according to Shore Capital, which has a 'sell' recommendation on the shares.
In the month since the interims, which featured forecast downgrades, the shares have outperformed the wider market by about 7%. Analyst Robin Speakman noted that the company is basically a quality player, but he voiced some concerns about the future:
'We agree that the company is high quality with exposure to long term secular growth; the company also has a reasonably strong market position, being number three amongst the global providers of testing services,' he said.
'However, margins remain under some pressure with key markets in commodities and Asian operations still under pressure... At the end of the day, our concern remains the price that investors are being asked to pay for growth in the circa 6% to 8% range, with sizeable acquisitions (leveraging growth upwards) looking hard to come by, in our view.'
Shares in the group closed at £32.05 on Wednesday, down 25p or 0.8%.
Bunzl's premium hard to justify, Berenberg Bank says
Bunzl (BNZL.L)'s premium rating is becoming increasingly hard to justify as organic growth at the outsourcing giant remains sluggish, according to Berenberg Bank, which has a 'sell' rating on the shares.
With organic growth difficult to come by, more than 80% of growth now comes from bolt-ons, analyst Simon Mezzanotte said.
'As a result, in H1 the company achieved a respectable 10% EPS growth, in line with what it has delivered over the last decade,' he said. 'The stock has, however, re-rated considerably in the last year and on 16.5x 2014 earnings per share (EPS), it looks too expensive to us.'
Over the past year the shares have climbed 22%, Mezzanotte noted, while consensus 2014 EPS estimates have fallen by 1%. The current 16.5x 2014 EPS figure represents a 20% premium to the historical average, he added.
Shares in the group closed at £13.64 on Wednesday, down 12p or 0.9%.
Canaccord lifts target price for 888 Holdings
Canaccord has increased its target price for 888 Holdings (888.L) after the gambling group posted an in-line set of interim results.
Earnings over the past six months were up 7% to $38.6 million, marginally ahead of analyst Simon Davies' $38.3 million forecast, with margins flat at 19.3%.
'The highlights of the performance were 888’s growing success in Spain (market leader in Casino, established no. 2 in Poker), and continued strong momentum in a weak Online Poker market,' Davies said.
'Bingo remained the weak link, with revenues down 18%.'
Rising revenues from the US have seen the shares take on 22% since the start of the year, but with a challenging tax outlook in the domestic market the analyst reiterated his 'hold' recommendation, albeit with an increased target price of 145p (up 3.2%).
Shares in the group closed at 143.1p on Wednesday, down 1.9p or 1.3%.
APR Energy posts £3 million loss
News that APR Energy (APR.L) has been awarded a substantial new set of contracts doesn't mask near-term pressures on the power provider, according to Westhouse, which has a 'sell' recommendation on the shares.
APR has been awarded a number of contract awards in Mozambique, Senegal and Indonesia totalling some 147 megawatts (MW). The awards bring the company's total new contract wins so far this year to 740MW, ahead of last year's total number of contract wins of 569MW.
However, the interim results, which were also released yesterday, showed a £3 million loss, which analyst Michael Donnelly said wasn't anticipated by the market.
'The strong outperformance in the shares in recent month reflect the expectation of a significant turnaround in the financials in 2014, which may now be the case,' the analyst said.
'We still think it reasonable to look for conversion of the impressive contract track record win into cash and profits before turning more positive on the shares.'
Shares in the group closed at £10.06 on Wednesday, up 35p or 3.6%.