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The Expert View: Prudential, Ocado & Admiral Group
by Michelle McGagh on Mar 13, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also including G4S and Halfords.
Prudential goes ‘from strength to strength’
Shore Capital analyst Eamonn Flanagan has reiterated his ‘buy’ recommendation for life company Prudential (PRU.L) which he said ‘goes from strength to strength’.
Flanagan said the Pru’s 2013 finals were ‘another excellent set of results’ that exceeded his and the market’s expectations plus a ‘bullish and optimistic’ outlook statement that included a 15% increase in the dividend and a renewed 15-year contract with Standard Chartered.
‘Prudential’s stock trades at a c.32% premium to our 2014 net asset value excluding dividend…dropping to c.23% for 2015,’ he said. ‘We reiterate our ‘buy’ recommendation on Prudential, the group goes from strength to strength.’
He added that the balance sheet remains ‘robust’ and the life insurance company has an increased capital surplus.
Halfords’ new store puts it back in the driving seat
A trip to a ‘reformatted’ Halfords (HFD.L) left Liberum analyst Sanjay Vidyarthi confident of the management’s turn-around strategy.
Vidyarthi retained a ‘buy’ recommendation and a target price of 600p on the bike and car maintenance company following the visit to the Evesham store in Worcestershire although he said there were no ‘material revelations’.
‘Halfords management continues to work within the parameters of its previous guidance and there were no material revelations from yesterday’s visit to the reformatted Evesham store,’ he said. ‘However, we came back confident that management’s turn-around strategy is sound and that there is good momentum in the business. Halfords remains our top recovery play in the sector.’
G4S a ‘sell’ as two years of pressure awaits
Security firm G4S (GFS.L) remains a ‘sell’ for Panmure after final 2013 results came in below expectations and further pressure is expected.
Analyst Mike Allen placed a target price of 200p on the shares and thinks the company will see pressures not just this year but also next.
‘Final results from G4S are below our expectations, with organic growth broadly in line, but with profitability below and interest costs slightly higher than anticipated,’ he said. ‘With in the mix, emerging markets growth appears robust, with North America flat and margins in the UK under pressure with Europe still declining year on year.
‘We anticipate further pressure on consensus estimates on the back of these results and maintain our cautious stand on the shares for now.’
Allen added that in the UK a settlement with the government of £109 million for overcharging on electronic tagging could hit cash flow.
Ocado thinking big but faces hurdles
Online supermarket Ocado (OCDO.L) has had a good start to the year and expects to grow its retail business ahead of the market.
Jefferies analyst James Grzinic retained a ‘hold’ recommendation and a target price of 275p and said although the group’s Q1 update showed ‘a solid start to the year’ he fears the supermarket will not be able to replicate its success in other countries.
Grzinic said while the Ocado website and its mobile site were doing well there were concerns about a third international site as licensing and technology hurdles persist.
‘A new valuation paradigm and the scarcity of European pure-plays has served Ocado shareholders well in recent time,’ he said. ‘We remain concerned that an enterprise value/sales of c.3% places too much confidence on the group’s ability to replicate its domestic success elsewhere.’
Admiral’s rating sinks on poor management outlook
Charles Stanley has downgraded insurer Admiral Group (ADML.L) to ‘reduce’ as management signal more muted growth.
Analyst Minal Shah reduced his recommendation and placed a target price of £15.18 on the shares despite full year profits before tax coming in better than consensus at £370 million versus forecasts of £364 million. The increase of full year dividend by 10% to 99.5p was also better than consensus of 98.1p.
However, the downgrade was fuelled by concerns about future growth.
‘Management signalled that the group is in a period of ‘more muted’ profit growth and that short term earnings will be supported by further reserve releases,’ said Shah. ‘In the medium term management expect ‘a turn in the UK motor cycle that will trigger price increases and provide an opportunity for growth’, while long term growth will be driven by the international businesses in Spain, Italy, France and the USA and the nascent UK home insurance business.’