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The Expert View: Rolls-Royce, Serco and Premier Foods
by Harry Brooks on Sep 25, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Close Brothers and Cupid.
Our daily round-up of analyst recommendations and commentary, featuring Rolls-Royce, Serco, Premier Foods, Close Brothers and Cupid.
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Jefferies lifts target price for Rolls-Royce
Jefferies has bumped up its target price for engineering group Rolls-Royce (RR.L), arguing that cash flows from its 'TotalCare' engine management and maintenance business will begin to gather pace next year.
Analyst Sandy Morris expects deliveries of Trent engines, which are used by Boeing and Airbus, to double by 2016, and revenues from TotalCare should pick up accordingly.
'We estimate TotalCare revenues will represent around 14% of forecast 2013 Group revenues, yet those revenues appear to dominate sentiment, apparently negatively in recent weeks,' the analyst said, reiterating a 'buy' stance on the shares.
'The key is to allow for what we see today to evolve rapidly; to allow for all of the powerful forces that will be at work. In short, we believe Rolls-Royce can achieve above-average growth in sales and earnings while simultaneously and quickly laying the foundations for strong, sustainable cash flows in the medium and long-term.'
Shares in the group closed at £11.32 on Tuesday, up 17p or 1.5%.
Liberum runs its 'doomsday scenario' for Serco
Liberum Capital's 'doomsday scenario' for troubled outsourcer Serco Group (SRP.L) suggests profits could slide on the back of the prison fraud investigations, but longer term the shares still look to be a good bet.
The shares have declined sharply in the wake of the government investigation of Serco’s prison escorting contract, and analyst Joe Brent said the group may end up paying a heavy price for the alleged failings. 'Our doomsday scenario would imply a 10% reduction to pre-tax profits in 2016, and a 20% reduction in 2019,' he said.
However, he only attributed a 10% probability to this, given the government’s reliance on Serco and the 'disarray' of other government suppliers such as G4S.
Even if Serco wins no more UK contracts from January 1 2014, Brent sees long-term value. 'Despite the near term risks, there is long term value as risk have been discounted,' he said, reiterating his 'hold' recommendation.
Shares in the group closed at 558p on Tuesday, up 5p or 0.9%.
Another senior management shuffle at Premier Foods
The departure of Premier Foods (PFD.L) CFO Mark Moran highlights the food distributor's problematic balance sheet, according to Panmure Gordon.
Moran chose to step down after CEO Gavin Darby asked him to commit to at least the next three years. 'He, like the previous CEO, obviously didn’t feel like sticking around that long, and as such steps down next week,' analyst Graham Jones said, reiterating his 'sell' recommendation.
'We have consistently argued that despite significant disposals in recent years, Premier’s balance sheet is not yet on a sustainable footing,' he added. 'In the absence of large disposals, we believe another significant rights issue (hopefully accompanied by a corporate bond issuance) is needed.'
Shares in the group closed at 143p on Tuesday, down 4.3p or 2.9%.
'Buy' Close Brothers, Canaccord says
Canaccord has reiterated its 'buy' recommendation on financial services company Close Brothers (CBG.L) after its full-year results hit the top end of consensus estimates.
Pre-tax profits rose 24.1% to £166.7 million, and the dividend per share rose 7.2% to 44.5p.
Chief executive Preben Prebensen said the company is firing on all cylinders: 'Close Brothers has delivered a strong financial performance, with continued good growth in Banking supported by an improving contribution from Securities and Asset Management.'
Analyst Robin Savage said the shares remain attractive despite their recent rise. 'Even though CBG shares are up 18% relative to the FT All Share over the past year, we see prospects for a 4% dividend yield and 17% upside to our 1320p target price: potential total shareholder return of 21%.'
Shares in the group closed at £11.89 on Tuesday, up 56p or 4.9%.
Peel Hunt puts Cupid under review
Peel Hunt has put its recommendation and target price for Cupid (CUP.L) under review as the dating site operator seeks to develop a closer relationship with its customers by ditching its casual dating businesses.
Last month's first-half results showed revenues up 32% to £16.5 million, though higher costs produced an overall loss of £0.5 million.
Earlier in the year it sold its Benaughty.com and Flirt.com casual dating sites for £45.1 million, seeking to refocus on the mainstream dating sector.
'We believe that the new branding, as well as the services that will gradually appear on its websites, will enable the company to develop longer and deeper relationships with its subscribers,' analyst Patrick Yau said.
'However, at this (very) early stage in the transition, it is difficult to quantify and model the trends from which we can draw financial information, so for now we keep our numbers under review.'
Shares in the group closed at 59.5p on Tuesday, down 5.5p or 8.5%.