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The Expert View: Ryanair, Lancashire and Aggreko
by Harry Brooks on Nov 05, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Direct Line and British Sky Broadcasting.
Our daily round-up of analyst recommendations and commentary, featuring Ryanair, Lancashire, Aggreko, Direct Line and British Sky Broadcasting.
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'Buy' Ryanair on profit warning slump, Jefferies says
Yesterday's profit warning from no-frills airline Ryanair (RYA.L) and subsequent slump in the shares provides an ideal entry window for bold investors, according to Jefferies.
Ryanair warned that it now expects profits of €500-€520 million, down from its previous projection of €570 million, this year as a result of increased competition and the weaker euro-sterling exchange rate. The warning is its second in as many months. Assuming the projections prove accurate the full-year figure will represent the first annual decline in profits in five years.
However, Jefferies' Mark Irvine-Fortescue said the medium-term picture still looks encouraging: 'October traffic increased 6%, with a 1% increase in the load factor, suggesting price promotional activity is stimulating demand. Clearly this is painful from a profit perspective, but we take the view that a hit to earnings in the near term is a price worth paying to secure industry-leading growth over the medium term, he said.
'Based on shares -10% today, Ryanair trades on 2014E 7.3x enterprise value/earnings (lease-adjusted), slightly below historical averages,' he added, reiterating his 'buy' recommendation.
Shares in the group closed at 5.3p on Monday, down 0.8p or 15.5%.
Storm losses will hit Lancashire, Peel Hunt warns
Peel Hunt has downgraded insurer Lancashire (LRE.L) from 'buy' to 'hold' following a strong spell for the shares.
'We are downgrading our recommendation on Lancashire to Hold, following strong share price performance since we pushed it in early September, and in the belief that weaker Q3 numbers could prompt profit-taking,' analyst Mark Williamson said.
The analyst expects the third quarter to prove challenging for Lancashire as a result of losses from storms in Europe and the Perro Negro 6 oil rig that capsized offshore Angola.
'We downgrade our recommendation to Hold, and would suggest that active investors may consider locking in some profits,' the analyst added.
Shares in the group closed at 813.5p on Monday, down 5p or 0.6%.
Cantor Fitzgerald downgrades Aggreko
Cantor Fitzgerald has downgraded power provider Aggreko (AGG.L) from 'buy' to 'hold' on fears over its strategic direction and weaker results recently.
'We have some concerns over the shift in the group’s strategy towards providing semi-permanent power as opposed to temporary power,' analyst Caroline de La Soujeole said. 'We have yet to be convinced over the merits of a turbine led business model.'
Aggreko had been a long-term 'buy' for de La Soujeole as her preferred play among power rental companies, but weaker results of late have led to a change of heart. 'We downgrade the shares from BUY to HOLD with a 1,700p target price (circa 6% upside) given the continued lacklustre trading conditions in Aggreko’s Power Projects division (circa 40% group earnings).
'We believe the shares are likely to trade sideways until we see firm evidence that the tide is finally turning.'
Shares in the group closed at £15.52 on Monday, down 32p or 2%.
Canaccord reiterates 'buy' on Direct Line
Canaccord has reiterated its 'buy' stance on Direct Line Insurance Group (DLG.L) following a third-quarter update that showed rising profits.
Third-quarter operating profits rose 6% on the same period a year ago, and the group said it now expects its restucturing costs for this year and next to be 12% lower than expected.
'We were struck by the more bullish tone of management,' analyst Ben Cohen said. 'Given DLG’s cost cutting programme (the full benefits of which have yet to be recognised) and strong reservingposition, we think the company is well-placed to compete versus its peers, and we continue to like its diversification outside of UK personal lines.'
Cohen has a 240p target price on the insurer.
Shares in the group closed at 227p on Monday, down 1.5p or 0.7%.
Westhouse downgrades BSkyB
Westhouse has downgraded British Sky Broadcasting (BSY.L) from 'add' to 'neutral' on valuation grounds.
'BskyB’s stock has appreciated by 16% since we initiated coverage in May, by 8% since its Q3 results on 17 October and has outperformed the market by 12% over the last three months,' analyst Roddy Davidson noted.
'Notwithstanding the positive performance and strong start to the current year highlighted in these results, this appreciation has taken the group’s valuation (15.3x / 9.3x FY2014E price to earnings and enterprise value/earnings ratios respectively, 3.3% yield) to within 8% of our current target price of 985p on a total return basis and therefore to a level more commensurate with our assessment of a fair value of its fundamental attractions.'
Despite the downgrade Davidson said the firm remains a core holding within the large cap media space.
Shares in the group closed at 941.5p on Monday, down 1.5p or 0.2%.