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The Expert View: RSA, Debenhams, Barclays
on Jan 07, 2014 at 05:00
A round-up of the best analyst commentary on shares, also including Staffline and Partnership.
Our daily round-up of analyst recommendations and commentary, featuring RSA, Debenhams, Barclays, Staffline and Partnership.
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‘Isolated’ Irish problem is good news for RSA
Reports that problems in insurer RSA’s (RSA.L) Irish arm were an ‘isolated incident’ have provided cheer for investors.
The Sunday Telegraph reported that an independent investigation by PwC into the £200 million blackhole in the Irish operations is set to conclude that no further write-downs are needed and that it is an isolated incident, when the report is published on Thursday.
Analyst Eamonn Flanagan at Shore Capital maintained his ‘hold’ recommendation on the shares and set a target price of 92p. He said that the report should be positive for the stock ‘provided the [RSA] chairman convinces the market on Thursday that the issues are genuinely one-off and provides an explanation as to how the group will ensure there is no repeat’.
‘Of course, Thursday is only likely to be about Ireland, with the wider strategic review of capital still not expected until the end of February. It is the outcome of that review that will dictate the stock performance going forward,’ said Flanagan.
The good news pushed shares up 6.78%, or, 6.25p to close at 98.4p on Monday.
Barclays can shrug off capital concerns
Lingering but unwarranted capital concerns have kept Barclays (BARC.L) shares cheap and they remain a buy, according to Investec analyst Ian Gordon.
Gordon placed a target price of 305p, up from 300p, on the shares as he said the bank ‘enjoyed a respectable 2013’ with the stock rising 12% in 12 months, but was up 81% over 19 months.
‘Despite a reasonable end-of-year rally, we attribute Barclays’ continuing optical cheapness to lingering capital concerns which in our view should have been snuffed out by publication of [the regulator’s guidance on capital standards],’ said Gordon.
Investec also expects chief financial officer Tushar Morzaria ‘to move further to ‘kill off’ the capital debate’ when Barclays’ full year figures are released on 11 February.
Barclays shares closed up marginally by 1.45%, or 3.9p, at 276p on Monday.
Debenhams’ discounts means department store still a ‘sell’
Analysts at Cantor Fitzgerald has reiterated its ‘sell’ rating for department store Debenhams (DEB.L) following a worse than expected end-of-year trading update.
Analyst Freddie George placed a target price of 78p on the shares after mild weather in October and November affected the sales of knitwear and costs, leading to increased discounting in store. Although George said analysts expected a poor update, he was shocked by the decline in sales.
‘Whilst a disappointing trading update had been expected, the scale of the decline was nevertheless a shock,’ he said. ‘In our view, management need to reassess strategy…The stock is not expensive but concerns regarding reliance on the discount ‘merry-go-round’, the strength of the balance sheet and cost of developing its on-line channel leads up to retain our sell recommendation.’
Shares closed down 0.38%, or 0.3p, at 77.8p on Monday.
‘Political meddling’ could hit recruiter Staffline
Recruiter Staffline Group (STAF.L) is on track to fulfil expectations but political will to change staffing regulation could cause the company problems.
Liberum analyst William Shirley retained a hold recommendation and placed a target price of 630p on the shares.
Although the company is on track to ‘meet expectations’ ahead of its results on 29 January, it could fall prey to ‘political meddling’ by Labour leader Ed Milliband who wants to change employment rules to ensure agency staff are paid the same as full-time staff.
‘Ed Milliband has stated that Labour would close a loophole in the Agency Workers Regulations to prevent agency workers being paid less than full time equivalent workers,’ said Shirley. ‘This is a legitimate and widely used employment model used both across the industry and by Staffline (approximated 25% of revenues).’
Shirley said a change in legislation could be a ‘threat to Staffline and a victory for the TUC’.
On Monday shares closed almost flat, up just 0.18%, or 1p, at 551p.
Insurer Partnership downgraded after failing to prove itself
Insurance company Partnership (PA.L) has been downgraded from buy to neutral by analysts Nomura following a disappointing third quarter.
Fahad Changazi, analyst at Nomura, said Partnership – which floated in June last year – had not managed expectations and had also suffered from new rules around advice which were introduced last year, called the Retail Distribution Review.
He placed a target price of 308p on the shares and said it will take a ‘few quarters of performance from the company to restore market confidence’.
‘We still believe top-down industry drivers in annuities, and in particular the individually underwritten annuity market, mean there will be strong earnings growth in the medium term,’ said Changazi.
Shares moved closed slightly lower on Monday, down 0.8% or 2.4p at 303p.