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The Expert View: RBS, Serco and Hiscox
by Daniel Grote on Jul 07, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Revolymer and MJ Gleeson.
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RBS’s recovery will be ‘very long indeed’
Investec analyst Ian Gordon is forecasting further losses at Royal Bank of Scotland (RBS) over the next two years, keeping the stock as a ‘sell’.
RBS last week raised around £51 million through issuing new shares, diluting the taxpayer’s stake in the bank to 79%. A further £150 million-worth of new shares are expected to be issued in the second half of the year, but a government exit from the bank is still some way down the road, according to Gordon.
‘No shares have been sold, nor do we expect the government to get started for some considerable time yet,’ he said.
Gordon said RBS management were making constructive efforts to reposition the bank onto a more sustainable footing, but he has kept his expectations for performance unchanged.
‘We expect it to remain modestly loss-making for the next two years (after six years of heavy losses in 2008 to 2013),’ he said. ‘Patience is required. We still see (modest) downside.’
Gordon retained a target price of 325p on the shares, which were trading at 331.5p at Friday’s close.
Expect special divi from Hiscox before the year is out
Berenberg analyst Tom Carstairs has upgraded Hiscox (HSX) from ‘sell’ to ‘hold’ as he eyes a special dividend from the insurer.
‘We continue to view the share as fully valued, but believe the company maintains an excess capital position beyond its needs which will see a further special dividend of 35p per share at the end of the year, assuming a normal year for catastrophe losses,’ he said.
‘While looking expensive on some other valuation metrics, a total dividend yield of 8.4% is attractive and warrants a more positive recommendation, in our view.’
Carstairs has a target price of 706p on the shares, which were trading at 735p at Friday’s close.
Glee for Gleeson as results beat expectations
Liberum analyst Charlie Campbell has upgraded his estimates for housebuilder and urban regeneration company MJ Gleeson (GLEG) due to better than expected sales.
Campbell has a ‘buy’ recommendation on the stock and a target price of 481p on the shares, which were trading at 395p at Friday’s close.
‘Gleeson’s year-end trading update on 2 July was stronger than we expected, and management said that it expects a level of profitability to be “significantly ahead of expectations”,’ he said.
‘We were also encouraged that net cash at the year end, at £13.8 million, was about £10 million better than we had expected – due to stronger than expected trading, as well as some timing differences.’
Campbell has raised his earnings estimates for the business by 16% for 2014 and 6% for 2105 as a result.
Revolymer’s new boss ‘ticks all the boxes’
Revolymer’s (REVO) appointment of Kevin Matthews as its new chief executive has won the approval of Panmure Gordon analyst Savvas Neophytou, who has reiterated his ‘buy’ recommendation for the polymer technology company.
Neophytou said Matthews ‘ticks all the boxes’ for Revolymer, which is held by star manager Neil Woodford in his CF Woodford Equity Income fund. ‘He gets the science. He had previous plc experience. Understands the industry in which Revolymer is operating in and the end-markets its products will be used in,' he said.
He said Matthews’ appointment should also help the company extract more value from its consumer specialties business, which represented the ‘key deliverable this year’.
‘Revolymer is already well on its way with a number of deals already executed and we expect Mr Matthews to enhance that,’ he said.
Neophytou has a target price of 93p on the shares, which were trading at 55.9p at Friday’s close.
Serco can withstand shock DLR contract loss
Serco’s (SRP) loss of its bid to continue running the Docklands Light Railway (DLR) franchise has come as a shock, but Shore Capital analyst Robin Speakman has maintained his ‘hold’ recommendation on the stock, arguing the blow will have limited financial impact.
‘This is one contract that, given past success, we expected Serco to renew successfully. However, in terms of the financial impact on the group, the loss has a relatively small impact. The DLR franchise generated annual revenues of around £90 million on a profit margin of around 4% in our estimation,’ he said.
‘The impact is more on sentiment and the loss of a reference client in light rail. We expect Serco to review its overall rail activities as part of its ongoing group operations review and we remain uncertain as to its rebid position for the more significant Northern Rail franchise.’
Speakman has a target price of 365p on the shares, which were trading at 362p at Friday’s close.
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Look up the shares
- Royal Bank of Scotland Group PLC (RBS.L)
- Revolymer PLC (REVO.L)
- Serco Group PLC (SRP.L)
- Hiscox Ltd (HSX.L)
- M J Gleeson Group PLC (GLEG.L)