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The Expert View: Royal Mail, Booker, British Land
by Harry Brooks on Oct 28, 2013 at 10:08
A roundup of analysts' commentary on shares, also including Shire and Petra Diamonds.
Our daily round-up of analyst recommendations and commentary, featuring Royal Mail, Booker, British Land, Shire and Petra Diamonds.
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Don't sell your Royal Mail shares, Panmure Gordon urges
Not got round to offloading your Royal Mail (RMG.L) shares yet? Not to worry, according to Panmure Gordon, because 'meaningful upside potential' remains.
'Despite the strong share price performance since listing, we believe there is still meaningful upside potential on a 12-month view and beyond. We initiate coverage with a Buy recommendation and 570p target price,' analyst Gert Zonneveld said.
The pillars of Zonneveld 'buy' thesis are an attractive regulatory regime, recent productivity gains, a modest risk profile and strong cash generation. His target price values the business at £5.7 billion, compared with the sale price of £3.3 billion. Panmure Gordon acts as a market maker for Royal Mail.
The analyst's recommendation coincided with news that investment bank JP Morgan told ministers the business could be worth some £10 billion – around two and a half times what the government got for it.
However, Schroders has reiterated its caution around Royal Mail's pension scheme deficit which could restrict the amount of cash for its dividend in future.
Shares in the group closed at 534.2p on Friday, up 5.2p or 1%.
Booker on 'protracted growth path', Peel Hunt says
Peel Hunt likes the look of what wholesaler Booker (BOK.L)'s doing with the facilities it recently bought off Makro, saying the firm is now in a solid growth phase.
Analyst Charles Hall visited Booker's Makro conversion in Sheffield on Thursday, and was encouraged by what he saw: 'It was striking to see the increased use of space that is driving sales from £24 million to £71 million (including the moved Booker), with a target of circa £100 million as the delivered operation is expanded,' he said.
Hall has a 'buy' recommendation on Booker, and a 160p target price. 'We continue to believe that Booker is in the early stages of a protracted growth path,' he added.
Shares in the group closed at 146.6p on Friday.
UBS upgrades British Land to 'buy'
UBS has upgraded real estate investment trust British Land (BLND.L) from 'neutral' to 'buy', saying the trust's discount is now unwarranted.
'Over the summer, we have seen the leading indicators for rental growth becomestronger and we now expect high single digit capital growth for British Land over the next two years,' analyst Kristian Bandy noted.
'However, the shares have underperformed peers this year (by 12%) and trade at a discount to peers. Unlike its peer group, its current share price does not reflect the capital growth we expect to come.'
Bandy predicts capital growth of 7% over the coming two years, while the trust's London portfolio could grow in value by 13%. The analyst's target price rises from 630p to 680p.
Shares in the group closed at 628p on Friday, up 5p or 0.8%.
Jefferies ups target price for Shire
Jefferies has increased its target price for Shire (SHP.L), eyeing cost-savings at the pharmaceuticals business.
'Profits are upgraded +5-9%, despite unchanged sales, as we reduce our already below consensus operating expenses to reflect management’s aims for broadly flat Non-GAAP (generally accepted accounting principles) costs until at least 2015E, more constraint than we hoped for,' analyst Peter Welford said.
His target price rises from £29 to £31, and he reiterated his 'buy' recommendation.
Shares in the group closed at 27.64p on Friday, up 4.6p or 0.2%.
Petra Diamonds a 'buy', Canaccord says
Petra Diamonds (PDL.L) is a 'buy', according to Canaccord, with industry-wide dynamics supporting the miner in the medium term.
'Diamond prices are expected to remain stable in 2014FY. Over the long term the lack of significant new supply and expected buoyant demand growth fuelled by the expanding middle class in China and India should support rough diamond prices,' analyst Dmitry Kalachev said.
Having switched his valuation methodology to a mix of price/cashflow, enterprise value/earnings and risked net asset value Kalachev now has a target price of 163p, up from 158p previously.
Shares in the group closed at 118.1p on Friday, down 0.1p or 0.1%.