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The Expert View: Resolution, Debenhams and GKN
by Michelle McGagh on Apr 16, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including 4imprint and Manx Telecom.
Resolution share price falls are ‘overdone’, says Barclays
Barclays believes the recent weakness in Resolution (RSL.L)’s share price has been ‘overdone’ and reiterated its ‘overweight’ rating on the insurer.
Resolution, which will soon be renamed Friends Life, has lost £1.2 billion of market cap since it announced its full year results on 18 March and was hit by the announcement of an overhaul to pensions rules in the Budget.
Barclays analyst Alan Devlin believes these falls are not a true reflection of the company and reiterated a target price of 370p. Shares were trading up 1.8% at 286p yesterday.
‘We believe the developments of the past three weeks have been exaggerated for Resolution, and indeed may result in a shift of focus from organic growth to back book consolidation,’ he said.
‘Resolution offer the highest dividend yield in the FTSE 100 of 7.6%, we believe the recent weakness is overdone and we reiterate our “overweight” rating, with 33% upside potential to our target price.’
‘Unconvincing’ Debenhams faces structural pressures
Investec has reiterated its ‘sell’ recommendation for high street retailer Debenhams (DEB.L) as analysts are unconvinced of its future prospects.
Analyst Kate Calvert cut the target price to 64p on the back of a December profit warning which prompted a downgrade of full year 2013 forecasts. Shares were trading up 3.4% at 80p yesterday.
‘Focus will be on whether management is clear on what went wrong [in full year 2013],’ said Calvert. ‘There appears to be no change in their top-line strategic objects. We remain unconvinced there is a quick fix and forecast full year 2014 to be the fourth year of earnings before interest and taxes decline. For us, the valuation is not compelling enough… given the structural pressures on the business.’
She added that, as well as an unconvincing strategy, the key risks for Debenhams lay in the economic and competitive environment.
4imprint share price fall flags buying opportunity
Promotional products supplier 4imprint Group (FOUR.L) has been upgraded as an ‘attractive buying opportunity’ after the share price lost 100p.
The shares have dropped from 725p to 625p since February which has led Peel Hunt analyst Malcolm Morgan to upgrade the shares from ‘hold’ to ‘buy’. He placed a target price of 730p on the stock, which was trading up 1.3% at 633p yesterday.
‘The 4imprint share price has retraced from a high of 725p in February to 625p currently. We believe this presents an attractive buying opportunity for investors,’ said Morgan. ‘4imprint is delivering mid-teens organic growth in a large and fragmented market in North America, driven by rigorous attention to detail, allied to the effective use of online and direct market techniques.’
Numis urges investors to snap up ‘cheap’ GKN shares
Global engineering group GKN (GKN.L) is providing value for Numis once again as they trade cheaper than the FTSE350 engineering sector.
Analyst David Larkan retained a ‘buy’ recommendation and a target price of 467p on the shares, which were trading up 1.8% at 380p yesterday.
‘GKN shares have drifted back ahead of the wider market…this is providing another buying opportunity with the shares once more the cheapest in our universe…[at] a 20% discount to the sector,’ said Larkan.
Larkan expected growth to be slow in the company but still exceed the market for the full year.
‘Positive updates…can only add to investor confidence in forecasts which should continue to assist in re-rating the shares over the medium term.’
Manx Telecom offering best divi in the sector
Isle of Man telecommunications company Manx Telecom (MANX.L) is getting closer to delivering its maiden dividend payment at a sector leading 6%.
Liberum analyst William Shirley reiterated his ‘buy’ recommendation and target price of 180p on the shares, which were trading up 0.91% at 165p yesterday.
‘Manx is cash generative, has a sector leading 6% yield and a consistent track record of delivering positive organic sales growth,’ said Shirley. ‘Full year 2013 results were bang in-line with our forecasts and estimates are unchanged.’
The company has recently opened the first phase of a data centre on time and on budget and its planned launch of a 4G network on the Isle of Man is on track.
‘We expect the shares to move higher as Manx continues to deliver, as the maiden dividend payment draws nearer and as customer wins remind the market of the growth opportunity,’ said Shirley.