The Expert View: Sainsbury's, G4S and AMEC

Our daily round-up of analyst recommendations and commentary, featuring Sainsbury's, G4S, AMEC, United Drug Group and Dairy Crest.

Key stats
Market capitalisation	£6,436m
No. of shares out	1,888m
No. of shares floating	1,649m
No. of common shareholders	not stated
No. of employees	48800
Trading volume (10 day avg.)	3m
Turnover	£22,294m
Profit before tax	£598m
Earnings per share	31.51p
Cashflow per share	56.85p
Cash per share	39.24p

*Correct as at 14 Nov 2012

Shore Capital sees Sainsbury's forecasts beaten

Darren Shirley, analyst at Shore Capital, has praised another strong set of results at Sainsbury's (SBRY.L), but warned that Tesco still poses a very real threat.

In the six months to the end of September underlying pre-tax profits rose 5.4% year-on-year to £373 million, beating Shirley's forecast of £370 million. A final dividend of 4.8p has been proposed, a 6.7% increase and again ahead of the analyst's 4.7p estimate.

'Against a backdrop of still tight consumer spending and an increasingly competitive trading environment, including a market leader investing 80-90bp of margin in its price and service proposition, Sainsbury has reported a very solid set of interim results,' Shirley said.

'However, we must reiterate our concern that if market leader Tesco does begin to regain share from its margin investment programme, then Sainsbury remains the most vulnerable given the scale of trading overlap between the two groups.'

Shirley retains his 'hold' recommendation on the shares and a 347p target price.

Shares in the group closed at 338.8p on Wednesday, down 8.4p or 2.42%.

Key stats
Market capitalisation	£3,511m
No. of shares out	1,404m
No. of shares floating	1,390m
No. of common shareholders	not stated
No. of employees	657000
Trading volume (10 day avg.)	6m
Turnover	£7,502m
Profit before tax	£207m
Earnings per share	14.73p
Cashflow per share	33.17p
Cash per share	35.82p

*Correct as at 14 Nov 2012

JP Morgan backs 'oversold' G4S

Robert Plant, analyst at JP Morgan, has reiterated his 'overweight' recommendation on security services provider G4S (GFS.L), saying the shares were oversold last week on news it had missed out on prisons contracts.

Shares in the group tumbled more than 3% after the government opted to keep three of five contracts to run seven prisons under public sector management and excluded the company from a shortlist of bidders for the remaining two. The decision was more bad news for G4S boss Nick Buckles, who is battling to restore the group's reputation after its failure to provide enough guards at the London Olympics.

However, Plant pointed out that just two days before the announcement G4S's third-quarter trading statement offered grounds for optimism, sending the shares up 5%. He also said the decision not to award the prison contracts may reflect a broader change in policy rather than recrimination for the Olympics.

'We think the UK prison situation may be more nuanced than it first appeared,' he said. 'We think a larger story on Thursday was the mixed signals that the Ministry of Justice sent on the outlook for prison outsourcing, as of the eight new prisons that were supposed to be privatized three will remain with the public sector and it was interesting that the share prices of even the successful bidders dropped.'

Shares in the group closed at 246.7p on Wednesday, down 3.2p or 1.28%.

Key stats
Market capitalisation	£3,308m
No. of shares out	310m
No. of shares floating	306m
No. of common shareholders	not stated
No. of employees	27733
Trading volume (10 day avg.)	1m
Turnover	£3,261m
Profit before tax	£207m
Earnings per share	61.98p
Cashflow per share	76.65p
Cash per share	156.82p

*Correct as at 14 Nov 2012

Canaccord cuts target price for AMEC

James Evans, analyst at Canaccord, has cut his target price for AMEC (AMEC.L), warning that the latest trading update reveals weakening trends in the energy industry services group's key markets.

Yesterday's interim management statement reported trading 'in line with expectations, highlighting growth in conventional oil and gas but lower sales in the mining sector. Evans said there was little to be gleaned from the announcement, but he warned the wider picture in the sector isn't encouraging.

'Recent trends in AMEC’s end markets (oil sands, mining) have been weaker than we expected,' he said. 'We see a risk that oil sands mining capex is peaking and will, at best, stay relatively flat over the next few years. Recent commentary from Australian peer WorleyParsons has confirmed this trend.'

He said the group looks cheap at 11.1x 2013 price to earnings, but he expects it to have lower growth than its rivals in the years ahead, so he ascribes a lower than average upside to his discounted cash flow valuation.

Evans reiterated his 'hold' recommendation, and his target price falls 4% to £12.15.

Shares in the group closed at £10.56 on Wednesday, up 23p or 2.23%.

Key stats
Market capitalisation	£546m
No. of shares out	239m
No. of shares floating	190m
No. of common shareholders	not stated
No. of employees	4543
Trading volume (10 day avg.)	0m
Turnover	1,398m EUR
Profit before tax	29m EUR
Earnings per share	0.12 EUR
Cashflow per share	0.22 EUR
Cash per share	0.37 EUR

*Correct as at 14 Nov 2012

Peel Hunt downgrades United Drug Group

Dr Paul Cuddon, analyst at Peel Hunt, has downgraded United Drug Group (UDG.L) from 'buy' to 'hold' following a strong run in the pharmaceutical firm's shares.

Yesterday's final results showed adjusted pre-tax profits up 11% year-on-year to £60.8 million on revenues of £1.47 billion, up 5%.

Cuddon said rising sales were a result of the increasing internationalisation of the outsourced pharmaceutical services business, with more than 70% of profits generated outside Ireland.

Trading at 8x 2013 enterprise value to pre-tax earnings, the shares are now in line with global rivals, the analyst said, so he has downgraded his recommendation.

Shares in the group closed at 231p on Wednesday, up 14p or 6.45%.

Key stats
Market capitalisation	£462m
No. of shares out	133m
No. of shares floating	128m
No. of common shareholders	not stated
No. of employees	6183
Trading volume (10 day avg.)	0m
Turnover	£1,632m
Profit before tax	£-17m
Earnings per share	-12.84p
Cashflow per share	19.60p
Cash per share	59.54p

*Correct as at 14 Nov 2012

UBS ups target price for Dairy Crest

Alan Erskine, analyst at UBS, has increased his target price for milk, cheese and spreads maker Dairy Crest (DCG.L) in anticipation of cost savings over the next six months.

Interim results for the six months to the end of September showed revenues down 7% year-on-year to £688.2 million and adjusted pre-tax profits down 16% to £19.1 million.

Erskine said this was pretty much what analysts had pencilled in, and reflected a strong performance by the Cathedral City cheese brand offset by lower spreads prices and a halving of dairy profits on the back of intense competition and lower by-productrevenues.

The analyst projects a 4% rise in earnings in the coming six months as a result of further efficiency gains, leading to a 9% increase in adjusted pre-tax profits to £52 million.

Shares in the group closed at 350.8p on Wednesday, up 7.9p or 2.3%.