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The Expert View: Pearson, Prezzo and WPP
by Daniel Grote on Apr 07, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Capital & Counties Properties and Arrow Global.
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Prezzo set to serve up tasting earnings
Panmure Gordon has upgraded Prezzo (PRZ.L) from ‘hold’ to ‘buy’ as the restaurant group prepares to deliver its 2013 earnings results next week.
Panmure said the group was well positioned to grow earnings strongly in the medium term as it rolls out its Italian and Mexican restaurant brands Prezzo and Chimichanga and its fledgling burgers-and-ribs eatery Cleaver.
‘In addition there is scope for improved profitability in the existing estate from like-for-like growth as the economic recovery picks up in the UK regions and margin improvements through less discounting and easing cost inflation,’ it said.
Panmure has raised its target price from 112p to 197p. Prezzo traded 1.5p lower at 157p on Friday.
Pearson backed to boost business across the pond
A potential upturn in Pearson’s (PSON.L) US business has convinced Jefferies to upgrade the publisher from ‘hold’ to ‘buy’ as the analyst looks forward to a recovery in spending in US primary and secondary education.
Jefferies said that while Pearson was ‘moving through a difficult transition’ and performance in the North America market had disappointed, it anticipated an upturn.
Jefferies pointed to the ‘Learning Registry’, an online information network set up by the US Department of Education to vet academic content, as potentially providing a boost to Pearson’s business.
‘In March, we revisited some conversations. We explored a new initiative, the ‘Learning Registry’; educational utility emerging beyond the demand for cheap/free content, a potential value proposition from Pearson perhaps. Also, market participants have seen a turn, clearly not yet visible at Pearson, but we think this will change.’Jefferies has raised its price target for the stock from £11.28 to £11.84. On Friday Pearson rose 21p to £10.28.
WPP still a ‘buy’ after margin disappointment
Deutsche Bank analyst Patrick Kirby is looking beyond the setback of a drop in margins for WPP Group (WPP.L) in keeping a ‘buy’ rating for the advertising and public relations company.
WPP reported in February that it expected to increase margins by 0.3% this year, down from an earlier prediction of 0.5%. ‘While we were disappointed with the timing of the announcement, we accept that, given the nature of the business, some sort of margin constraint was due at some point in the next few years,’ said Kirby.
‘Morever, a sense check with peers reassures us that there has not been a deterioration in competitive conditions, just a continuation of the existing intense environment.’
Kirby has a target price of £14.70 for the stock. On Friday it shed a penny at £12.58.
Liberum urges caution after CapCo planning wins
Capital & Counties Properties (CAPCC.L) has notched up some ‘impressive’ planning approvals but Liberum analyst Michael Burt is adopting a cautious approach.
Burt said that while the real estate investment trust had secured planning approval for the 16-acre Earls Court village, and for the conversion of the 445,000 square feet Empress State office in Hammersmith into residential use, he had already anticipated those planning wins.
He has maintained his ‘hold’ rating on the shares and, although raising the target price from 351p to 377p, has cautioned that prime London residential property is ‘in the crosshairs ahead of a 2015 UK general election’.
‘The painful experience of recent government policy changes in the insurance, utilities and gambling sectors urges caution,’ he said. Capital & Counties added 2.8p to 349.3p on Friday.
Arrow will keep rising
Canaccord Genuity has raised its target price for Arrow Global (ARWA.L), anticipating the debt purchaser will be able to increase productivity and compensate for keener pricing.
It has reiterated its buy rating for the stock, and notched up the target price to 318p. The shares gained 6p to 230p on Friday.
‘The UK debt purchase market is well established and beginning to consolidate,’ it said. ‘We see attractive market fundamentals: increasing activity, rational competitors with different niches and regulation providing barriers to new entrants,’ it said.
‘We expect the first quarter interim management statement (due 22 May) to provide a detailed quarterly report, after which investors should recognise the profitability of Arrow’s business model and ascribe an appropriate rating for the debt and equity.’