The Expert View: Prudential, Tesco and G4S

Our daily round-up of analyst recommendations and commentary, featuring Prudential, Tesco, G4S, British American Tobacco and Informa.

Key stats
Market capitalisation	£28,623m
No. of shares out	2,557m
No. of shares floating	2,540m
No. of common shareholders	not stated
No. of employees	25414
Trading volume (10 day avg.)	4m
Turnover	£36,506m
Profit before tax	£1,415m
Earnings per share	55.75p
Cashflow per share	na
Cash per share	284.81p

*Correct as at 13 Mar 2013

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.

Key stats
Market capitalisation	£30,180m
No. of shares out	8,041m
No. of shares floating	8,010m
No. of common shareholders	not stated
No. of employees	519671
Trading volume (10 day avg.)	20m
Turnover	£64,539m
Profit before tax	£2,948m
Earnings per share	36.64p
Cashflow per share	55.36p
Cash per share	43.02p

*Correct as at 13 Mar 2013

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%.

Key stats
Market capitalisation	£4,186m
No. of shares out	1,404m
No. of shares floating	1,391m
No. of common shareholders	not stated
No. of employees	657000
Trading volume (10 day avg.)	2m
Turnover	£7,502m
Profit before tax	£207m
Earnings per share	14.73p
Cashflow per share	33.17p
Cash per share	35.82p

*Correct as at 13 Mar 2013

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%.

Key stats
Market capitalisation	£67,446m
No. of shares out	1,930m
No. of shares floating	1,841m
No. of common shareholders	not stated
No. of employees	87813
Trading volume (10 day avg.)	3m
Turnover	£15,190m
Profit before tax	£3,841m
Earnings per share	197.08p
Cashflow per share	235.87p
Cash per share	109.15p

*Correct as at 13 Mar 2013

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.

Key stats
Market capitalisation	£3,121m
No. of shares out	603m
No. of shares floating	592m
No. of common shareholders	not stated
No. of employees	8275
Trading volume (10 day avg.)	1m
Turnover	£1,233m
Profit before tax	£91m
Earnings per share	15.04p
Cashflow per share	40.89p
Cash per share	3.97p

*Correct as at 13 Mar 2013

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%.