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The Expert View: Prudential, Tesco and G4S
A roundup of some of the best analyst commentary on shares, also including British American Tobacco and Informa.
Our daily round-up of analyst recommendations and commentary, featuring Prudential, Tesco, G4S, British American Tobacco and Informa.
Prudential raises dividend on ‘sparkling’ performance
The City only had kind words for Prudential (PRU.L) on Wednesday after the insurance company reported expectation-busting financial numbers for 2012 alongside a 16% dividend rise.
Analysts at Berenberg said Prudential had ‘sparkled’ after ‘beating consensus on almost every metric’. They kept their ‘buy’ rating on the shares.
The company reported a 25% rise in IFRS operating profits to £2.5 billion in 2012, boosted by strong Asian business.
The dividend rise came in sharp contrast to payout cuts from rival insurers RSA and Aviva – and investors rewarded Prudential with a 9.3% share price rise to 1,050p.
Charles Stanley pointed to ‘Asian sales growth story remaining intact, solid margins, a robust capital position, strong cash generation,’ in justifying an ‘accumulate’ stance on the shares. The dividend rise showed the Pru were targeting ‘value over volume’, Clarke said.
‘Being our favoured stock in the UK Life Insurance sector we were pleased that the results were so strong and were ahead of expectations pretty much across the board,’ he added.
More horse trials for Tesco
News that Tesco (TSCO.L) has pulled another product after tests revealed it contained horse meat won't do much to restore the British public's faith in frozen ready meals.
Shore Capital analyst Clive Black said yesterday's announcement regarding the chain's own-brand frozen meatloaf - which was found to contain 2-5% horse - will only worsen the situation. Data from industry analyst Symphony IRI indicates that UK consumption of frozen prepared meat has already fallen 13% since the scandal broke.
The discovery also comes 11 days after Tesco reassured its customers that it had finished testing all of its products. Black upgraded Tesco from 'hold' to 'buy' last week on an improving long-term outlook, and he admitted the timing 'represents a modicum of disappointment'.
Nonetheless, he's sticking by his recommendation: 'We argue that a change is taking place at Tesco that will see its business model migrate to one that focuses more on the performance of its existing estate, seeks to be more judicious with its capital and progressively leads to and demonstrates stronger free cash flow generation.'
Shares in the group closed at 376p on Wednesday, down 4.5p or 1.2%.
G4S reels from £88 million Olympics bill
In spite of a £88 million bill for the Olympics fiasco, security group G4S (GFS.L) is well placed to benefit from increased public sector outsourcing in the UK, according to Cantor Fitzgerald analyst Caroline de La Soujeole.
Pre-tax profits sank 32% year-on-year to £175 million as a result of the bill, while overall organic growth was up 7%.
'The shares have outperformed the FTSE All Share by 11.2% on a three month view and G4S remains one of our top picks in the sector,' de La Soujeole said, adding that its rising exposure to emerging markets (33% of sales, target to reach 50% by 2019) is factor in the group's favour.
'We believe G4S should be trading at a premium to its peers reflecting its track record of growth and more attractive operational and geographical profile,' she concluded.
Shares in the group closed at 300p on Wednesday, down 7.6p or 2.5%.
Deutsche Bank raises British American Tobacco's target price
Deutsche Bank analyst Jonathan Fell has increased his target price for British American Tobacco (BATS.L), saying the group's combination of cash generation and broad geographical spread remains attractive.
Although Fell noted that the shares have done well recently off pound weakness, he said receding regulatory concerns suggest they could yet go further.
'Regulation has the potential to reappear as an issue from time to time, but BAT remains for us one of the highest-quality European Staples stocks which should deliver consistent low-double digit returns over the mid to long term,' he said.
Fell's target price rises from £33 to £37, which he attributed to 'a combination of earnings upgrades, revised cash flow forecasts and the roll-forward of our discounted cash-flow model'.
Shares in the group closed at £34.99 on Wednesday, down 113p or 3.1%, having gone ex-dividend.
Berenberg Bank downgrades Informa
Academic publisher Informa (INF.L) is going to struggle to get its top line moving again while preserving margins, according to Berenberg Bank analyst Emma Coulby, who has downgraded the shares from 'buy' to 'hold'.
Last month's full-year results were a mixed bag, Coulby noted, with organic growth falling 2%, but impressive improvements to the group margin, up 200 basis points year-on-year, leading to earnings per share growth of 7.5%.
'For 2013, Informa is guiding to underlying growth in all three divisions, anticipating this to be a year where the top line is prioritised, while margins are expected to be flat on 2012,' Coulby said.
'We are concerned that this top-line guidance relies on improvement in the macroeconomic environment and we are cautious about how much of the recent margin improvement is sustainable during a quest for top-line growth.'
Shares in the group closed at 519.7p on Wednesday, down 5.8p or 1.1%.