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The Expert View: Schroders, Aviva and DS Smith
by Michelle McGagh on Mar 07, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also including Shaftesbury and Devro.
Contrarians should look to Devro, says Numis
Numis has picked sausage casing maker Devro (DVO.L) as ‘one for the contrarian’ as analysts upgrade the stock.
Analyst Charles Pick upgraded his recommendation from ‘hold’ to ‘add’ although he cut the target price from 330p to 285p on the shares as he believes a share price slide on the back of poor full year results has been ‘overdone’.
‘The shares have taken a severe pasting since Tuesday’s finals and whilst there are legitimate grounds for this we are of the view that matters have been overdone,’ he said. ‘[The 2013 results showed] no real issues as the P&L result was as expected and the level of end year net debt was only slightly above projections.’
He said the shares were impacted by the ‘mixed nature’ of the outlook statement, a decline in sales without taking into account increased production volumes that saved £4.7 million in manufacturing efficiencies.
‘Is the gloom overdone? We feel this could now be the case,’ said Pick.
Schroders: good results and good value
A good set of full year 2013 results from Schroders (SDR.L) means the fund management company is looking like good value.
Barclays analyst Daniel Garrod retained an ‘overweight’ recommendation on the stock and a target price of £30.10.
‘Schroders has reported a good set of full year 2013 results with encouraging momentum in Q4 retail flows driven by sales of multi-asset and equity funds,’ he said. ‘Outlook appears a little cautious but this name has only performed in line with a flat FTSE 100 year to date and appears good value.’
The company has seen better than expected quality of inflows into its funds and assets under management at the end of December totalled £262.9 billion.
‘Management outlook is slightly cautious, stating that after strong returns in 2013, investors might find 2014 more challenging,’ said Garrod. ‘Nonetheless they believe Schroders is well positioned for growth with a highly international business, diversified client base and global distribution.’
Investec: DS Smith is a top pick for the year
Packaging manufacturer DS Smith (SMDS.L) remains a top pick for Investec after another solid trading update.
Analyst Thomas Rands reiterated his ‘buy’ recommendation and target price of 400p as better than expected corrugated box volumes and strong performances in Germany and Eastern Europe make DS Smith one to watch.
Rands praised a ‘strong focus on innovation’ and consolidation in the supply chain leading to greater efficiencies. ‘DS Smith remains one of our top picks for 2014,’ he said.
‘DS Smith is a key pick, as it was in 2013,’ said Rands. ‘Given the earnings per share and dividend per share growth profile, and potential for upgrades, we continue to think a 10% premium to the 2015 price earnings ratio of the FTSE 250 is justifiable.’
Shaftesbury acquisition a boost for shareholders
News that real estate investment trust Shaftesbury (SHB.L) has announced a 9.99% share placing to finance a new London acquisition could be good news for investors, say Cantor analysts.
Sue Munden, analyst at Cantor, retained a ‘buy’ recommendation and a target pricing of 700p, following the news that the creation of 25 million new shares would pay for the £54.4 million purchase of property on Charing Cross Road in the West End.
‘The block has an acquisition price of £54.3 million, representing a very low yield on the £1.4 million annual rent but reflective of the short leases and upgrade potential,’ said Munden. ‘With a £10 million refurbishment program, the group expects to be able to increase the rental income considerably.’
She added that the block was well-placed to become the Regent’s Street of the area and the acquisition ‘will offer significant [share] value uplift potential going forward, and be significantly value enhancing for holders’.
Aviva’s ‘considerable’ issues make it a ‘sell’ for Shore Capital
Shore Capital analyst Eamonn Flanagan has reiterated his ‘sell’ recommendation for insurer Aviva(AV.L) as ‘considerable’ concerns remain.
Aviva’s full year 2013 results were broadly in line with Shore Capital’s expectations and the market was expected to react positively to the fact it had reduced its inter-company loan by £1.7 billion to £4.1 billion, but it was not enough to convince Flanagan.
‘The issue to us remains one of valuation, after quite a remarkable rally in the stock over the past year,’ he said. ‘The final dividend increase of just 4% was behind our 6% forecast with little prospect of greater than 6% expected in the current year.’
Flanagan said Legal & General offered better dividend prospects. ‘There is no doubting the progress delivered by the new CEO at Aviva to date, but some considerable issue remain – such as the external debt level which remains at 50% of tangible capital, with 40% targeted over time – which require addressing before shareholders reap the benefits,’ he said.