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The Expert View: Sainsbury's, G4S and AMEC
by Harry Brooks on Nov 15, 2012 at 05:01
Our daily round-up of analyst recommendations and commentary, also featuring United Drug Group and Dairy Crest.
Our daily round-up of analyst recommendations and commentary, featuring Sainsbury's, G4S, AMEC, United Drug Group and Dairy Crest.
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%.
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%.
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%.
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%.
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%.