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The Expert View: RSA, Mitchells & Butler, Majestic Wine
by Michelle McGagh on Jun 17, 2014 at 05:01
A roundup of the best analyst commentary on shares, including Debenhams and Lamprell.
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Barclays upgrades RSA on ‘golden opportunity’
There is a ‘golden opportunity’ for RSA Insurance Group (RSA) to put its business on a level footing leading to as much as 31% upside for shareholders, according to Barclays Capital.
Analyst Andy Broadfield upgraded RSA from ‘equal weight’ to ‘overweight’ and increased the target price from 427p to 538p as he looked to chief executive Stephen Hester to cut costs and turn around a business recovering from an accounting scandal in Ireland.
‘We highlight RSA’s poor relative performance on cost, particularly in the UK and view this as a golden opportunity – with new management across the board – to address this cost base,’ he said. ‘We see up to 31% upside should RSA be able to get its cost base to the industry average.’
If it is able to address its cost issues Broadfield said cash yields to shareholders in 2016 could be as high as 9.3%.
‘Even in our base case, RSA offers the second most attractive yield in our UK insurance universe,’ said Broadfield. ‘While our base case price target of 538p captures only what we expect management to detail on 7 August, the potential, and we think quite possible, second efficiency phase should give the stock additional momentum as we move into 2015.’
RSA shares closed yesterday 2.1p or 0.4% down at 484p.
Mitchells & Butlers looks good with Orchid pubs, says Numis
Numis Securities has bumped up its profit forecasts for Mitchells & Butlers (MAB) after it completed the £266 million acquisition of Orchid Pub Company.
Analyst Douglas Jack retained a ‘buy’ rating and a target price of 525p on shares in the pub and restaurant chain which dipped 2.7p or 0.7% to 404.6p.
Mitchells has bought 173 of Orchid’s 220 pubs, including The Great British Carvery, Thai Dragons and Fuzzy Ed’s brands.
‘We believe the deal is a good one for Mitchells & Butlers, at a price it can comfortably afford,’ he said. ‘We are upgrading our [profit] forecasts by 1% for 2014 and 6% for both 2015 and 2016. This reflects Mitchells low (1%) financing cost for the transaction, good synergy potential – for which the £6 million estimate is conservative in our view – and an expectation that Mitchells’ expansion programme will be unaffected by this transaction.’
Liberum keeps Majestic Wine on ‘sell’
Liberum is steering clear of Majestic Wine (MJW.L) until there are further signs of recovery following the wine retailer’s profits warning in March.
Analyst Sanjay Vidyarthi retained a ‘sell’ rating and a target price of 350p after full-year results yesterday came in line with lowered expectations. Pre-tax profit for the year to 31 March edged to £23.8 million from £23.7 million a year ago. The company said it expected to return to profits growth next year.
The shares slid 16.5p or 3.8% to 417p yesterday after the company alluded to ‘continuing subdued market conditions’.
‘We do not expect any material changes to consensus today as management accelerates its investment in the business,’ said Vidyarthi. ‘We remain comfortable slightly (3%) below consensus. The shares trade on a calendar 2014 price earnings ratio of 16 times. There is a strong underlying business here that is fixable. But at this valuation, we need to see signs of meaningful recovery before turning more positive.’
Too early for Debenhams’ recovery, says Jefferies
Jefferies analyst Caroline Gulliver said it was too early to buy into a Debenhams (DEB) recovery as she looked ahead to the department store’s third quarter sales figures.
Gulliver retained a ‘hold’ rating and a target price of 75p on the shares, which gained 1.75p or 2.5% to 73p.
She expected Q3 sales to be affected by a later than normal sales season and fewer promotions.
‘We expect Debenhams’ Q3 sales statement to highlight the company’s shift in focus away from sales growth towards cash gross profit,’ she said. ‘We forecast group like-for-like sales growth of -1% and total sales growth of -0.3% both negatively impacted c.2% by management’s decision to delay the summer sale by two weeks.
‘We think it’s too soon and too risky to buy into a potential profit recovery.’
Lamprell rights issue is ‘fairly valued’, says Investec
Neill Morton of Investec Securities has given a thumbs-up to the £71 million rights issue launched by oil rig maker Lamprell (LAM) last month.
Morton said the fund raising look ‘fairly valued’ and retained a ‘hold’ 149p and 149p target price. The shares dipped 3p or 2% to 148.75p.
‘Lamprell’s new management team has taken advantage of a pick-up in order momentum by launching a rights issue and debt restructuring,’ he said. ‘Given previous commentary, neither should have come as a surprise. In our view, this is essentially a bet on near-term earnings dilution versus greater productivity, improved financial flexibility and enhanced growth in the medium term. The shares currently look fairly valued, in our view.’
Morton said earnings per share would be ‘diluted’ after the issue of new shares but $10 million (£5.9 million) benefit from productivity improvements in 2016 is expected.