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The Expert View: Schroders, Aviva and DS Smith

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by Michelle McGagh on Mar 07, 2014 at 05:01

Our daily roundup of analysts' share recommendations and commentary, also including Shaftesbury and Devro.

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Key stats
Market capitalisation£429m
No. of shares out167m
No. of shares floating161m
No. of common shareholdersnot stated
No. of employees2220
Trading volume (10 day avg.)0m
Turnover£241m
Profit before tax£33m
Earnings per share19.82p
Cashflow per share29.39p
Cash per share3.40p

*Correct as at 6 Mar 2014

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.

Key stats
Market capitalisation£7,679m
No. of shares out283m
No. of shares floating183m
No. of common shareholdersnot stated
No. of employees2767
Trading volume (10 day avg.)0m
Turnover£1,425m
Profit before tax£283m
Earnings per share101.33p
Cashflow per share105.73p
Cash per share1,274.58p

*Correct as at 6 Mar 2014

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.’

Key stats
Market capitalisation£3,236m
No. of shares out934m
No. of shares floating930m
No. of common shareholdersnot stated
No. of employees19736
Trading volume (10 day avg.)2m
Turnover£3,669m
Profit before tax£66m
Earnings per share7.12p
Cashflow per share24.05p
Cash per share12.56p

*Correct as at 6 Mar 2014

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.’

Key stats
Market capitalisation£1,588m
No. of shares out253m
No. of shares floating247m
No. of common shareholdersnot stated
No. of employees23
Trading volume (10 day avg.)0m
Turnover£90m
Profit before tax£239m
Earnings per share94.70p
Cashflow per share94.78p
Cash per share0.59p

*Correct as at 6 Mar 2014

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’.

Key stats
Market capitalisation£14,831m
No. of shares out2,947m
No. of shares floating2,919m
No. of common shareholdersnot stated
No. of employees33122
Trading volume (10 day avg.)8m
Turnover£43,152m
Profit before tax£-326m
Earnings per share-11.20p
Cashflow per share-9,999,999.00p
Cash per share784.19p

*Correct as at 6 Mar 2014

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.

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