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The Expert View: RBS, Balfour Beatty and Prudential
by Harry Brooks on Dec 04, 2012 at 05:01
The best analyst commentary on shares, also featuring Beacon Hill Resources and Consort Medical.
Our daily round-up of analyst recommendations and commentary, featuring RBS, Balfour Beatty, Prudential, Beacon Hill Resources and Consort Medical.
Shore Capital warns of long road to privatisation at RBS
Gary Greenwood, analyst at Shore Capital, has warned that the path to privatisation at Royal Bank of Scotland (RBS.L) will be long and tortuous amid reports the bank plans to resume dividend payments at the end of 2014.
Once dividends to ordinary shareholders recommence the government will begin selling off its roughly 80% stake, the Times reports. The plan is to dispose of the stake with four separate share offerings of about £10 billion each spread over 10 years.
Greenwood noted that if correct this would represent a very lengthy exit process for the government. 'Of course, we would also expect such plans to be subject to considerable change given prevailing market conditions, such that there can be no certainty, in our view, that this path will ultimately be followed,' he added.
'Shore Capital has a HOLD stance on RBS, whose shares currently trade on a December 2013 price to tangible net asset value ratio of 0.59x (return on tangible equity of 6.0%) with a price to earnings ratio of 10.1x and no dividend yield.'
Shares in the group closed at 294.09p on Monday, down 1.11p or 0.38%.
Investec cuts target price for Balfour Beatty, reiterates 'sell' recommendation
Andrew Gibb, analyst at Investec, has cut his target price for infrastructure services company Balfour Beatty (BBY.L) and reiterated his 'sell' recommendation, warning that last month's profit warning may not be the last.
'There will be a time to reconsider our negative stance on Balfour Beatty, but it does not feel that the time is now,' he said. Last month's profit warning revealed serious problems in both UK construction and in the US, with volumes under pressure, big projects thin on the ground and construction margins tight, Gibb said.
'This means cash had exited the building (so to speak) and the group is now running with debt,' he added. The analyst's target price drops 10p to 200p based on on his sum-of-the-parts valuation.
'With management effectively walking away from FY13 guidance and the very considerable uncertainty which still exists, both in end markets, but more importantly over cash (or lack thereof), we think the stock will continue to underperform,' he concluded.
Shares in the group closed at 255.23p on Monday, down 3.07p or 1.19%.
Berenberg Bank says 'buy' Prudential
Matthew Preston, analyst at Berenberg Bank, has reiterated his 'buy' recommendation on financial services group Prudential (PRU.L) following an investors' conference that highlighted the strength of its US operation.
Jackson National was the star of the show at the recent event in New York, Preston said. 'While we believe JNL to be a formidable part of the Prudential investment case, the difficulties faced by US and European peers in the variable annuity (VA) market had resulted in some investors being wary of JNL’s market share increases in this space and its ability to hedge the risks,' he said.
'In our view, much of this concern should have now been allayed. Management’s decision to provide peer-leading disclosure in this area, coupled with a very strong track record of delivery, increase our confidence in the robustness of JNL. We remain very comfortable with our Buy recommendation.'
Shares in the group closed at 901.71p on Monday, down 3.29p or 0.36%.
Canaccord slashes target price for Beacon Hill Resources
Tim Dudley, analyst at Canaccord, has slashed his target price for mining group Beacon Hill Resources (BHR.L) on worries about the firm's bank balance.
In a strategy update the group posted updated expansion plans for its Minas Moatize coking coal project in Mozambique, which will increase its processing capacity from 1.8 million tonnes a year to 2.8 million tonnes a year by the end of 2013.
Although Dudley welcomed the plans, he cautioned that they would strain the finances. 'The key questions turn to whether the group has the funds to achieve these two objectives. We forecast the group finishing the year with £2 millio in cash, which will see the group potentially into Q2/13, assuming a new facility is quickly secured in Q1,' he said, cutting his target price from 14p to 8p but reiterating his 'buy' stance.
'As the revised profile and net present value now forms the base case, if we take into account the low cash position over the ramp up period and the current share price, we believe it is prudent to apply a 50% discount to the valuation.'
Shares in the group closed at 3.2p on Monday, down 0.25p or 7.25%.
FinnCap unmoved as Consort Medical wins contract
Keith Redpath, analyst at FinnCap has welcomed news that Consort Medical (CSRT.L) has secured a contract with British American Tobacco, but he isn't changing his profit forecasts as the new product won't be on the shelves for a couple of years yet.
Consort has won a full manufacturing contract to make nicotine inhalation devices for Nicoventures, a standalone company within British American Tobacco. Consort will be responsible for the capital expenditure on the product, which awaits regulatory approval.
'We are making no changes to our revenue and profit forecasts to April 2014; however, we will be increasing capital expenditure by an estimated £25 millio, which will increase the net debt position in both 2013 and 2014,' the analyst said.
'Whilst we retain our Hold recommendation, for those in the money, we suggest locking in profits, selling into further price strength.'
Shares in the group closed at 781.34p on Monday, up 22.84p or 3.01%.