Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/wealth-manager/gallery/a700361
The Expert View: Serco, Berkeley Group and Circle Oil
by Harry Brooks on Sep 03, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Marshalls and Consort Medical.
Our daily round-up of analyst recommendations and commentary, featuring Serco, Berkeley Group, Circle Oil, Marshalls and Consort Medical.
If you'd like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites. To buy shares via JP Morgan, click on the shopping trolley icon.
'Buy' opportunity in Serco?
Worries that Serco Group (SRP.L) could find itself excluded from future government contracts in the fallout from prison fraud investigations have led the shares to be oversold, according to Jefferies.
'In our view, Serco is ''fit for purpose'' and the UK government has few competitive alternatives if G4S and Serco exit justice outsourcing,' Kean Marden said.
Although he has dropped his target price from 750p to 675p in anticipation of rising internal monitoring costs, he still ranks the shares a 'buy'.
'Following the announcement of irregularities in Serco’s Prison Escorting contract, some brokers consider Serco’s shares to be uninvestible,' he said. 'It’s difficult to argue that this is an isolated incident as Serco’s Electronic Monitoring contract also experienced problems in July, but we doubt these reports will conclude that Serco is not ''fit for purpose'' and should be barred from acting as a supplier to the UK government.'
With the shares down 20% since the start of its problems with the prison contracts they now trade at around 12x projected 2014 earnings, which is at the bottom of the 10-year range, the analyst added. Assuming the government does give Serco the all-clear he believes they should rise back up to around the 15x level.
Shares in the group closed at 547p on Monday.
Berkeley Group on track for shareholder payout
Shore Capital has reiterated its 'hold' recommendation on Berkeley Group (BKG.L), saying the homebuilder is well placed to meet its profit targets for the year ahead.
Yesterday's interim statement, covering the four months to the end of August, struck an upbeat tone, with the management saying strong demand - bolstered by the government's Help to Buy scheme - has seen forward sales exceed the £1.5 billion level.
The homebuilder remains on target to return £568 million to shareholders by 30 September 2015, the statement noted.
'This is a strong statement,' analyst Gavin Jago said. 'We continue to believe that the Berkeley business model is a strong one and maintain our HOLD recommendation.'
Shares in the group closed at £21.82 on Monday, up 63p or 3%.
'Buy' Circle Oil, Liberum says
The market's worries about political instability in Egypt have left Circle Oil (COP.L) undervalued, according to Liberum Capital, which has a 'buy' recommendation on the shares.
Yesterday's interim results from the oil and gas explorer, which has operations across North Africa and the Middle East, showed revenues up 20% year-on-year to $42 million and post-tax profits up 10% to $14.7 million.
Liberum's Andrew Whittock said the outlook for the second half is encouraging, with the drill bits ready to spin on its delayed Moroccan drilling programme.
'With the development of its fields in Egypt almost complete, Circle should benefit from a strong increase in free cash flow - we estimate that it will generate more than US$300m of post-tax cash flow over 2013-17,' he said.
'We believe the share price is over-discounting Egyptian risk and fails to recognise Circle’s capacity to invest for growth both within existing countries and others in the region. Circle is one of the most over-looked small cap E&Ps.'
Shares in the group closed at 18p on Monday, down 0.25p or 1.4%.
Peel Hunt lifts target price for Marshalls
Peel Hunt has increased its target price for paving slab maker Marshalls (MSLH.L), arguing it will be able to increase prices ahead of rises in costs.
The interim results weren't particularly encouraging, with a wet first quarter leading to a 4% decline in turnover.
However, analyst Clyde Lewis has been through the numbers and concluded there are reasons for optimism. 'We have examined the impact of higher volumes and price rises exceeding cost pressures over the 2014-2015 period, and conclude that the group should see an annual average £8.5 million increase in operating profits,' he said.
'Marshalls has built a strong niche over a difficult trading period and now looks ready to reap the benefits of the hard work that has been put in.' His target price rises from 135p to 180p, and he reiterated his 'buy' recommendation.
Shares in the group closed at 151p on Monday, up 3p or 2%.
Consort Medical's overvalued, Finncap argues
Drug delivery specialist Consort Medical (CSRT.L)'s premium valuation makes it a 'sell' for Finncap.
Consort's first-quarter update showed trading in line with expectations, with a net cash position of £35.2 million at 31 July. The update also included news that its Bespak subsidiary has been granted a licence to receive filled canisters and insert them in the Oxette nicotine inhalation device.
However, analyst Keith Redpath said the price of the shares is at odds with how he perceives the business: 'Consort Medical’s shares continue to be rated on multiples significantly higher that its larger US peer, AptarGroup, giving a valuation more akin to a medical device company as opposed to that of a packaging contractor,' he said.
'We reiterate our Sell recommendation, and our 690p price target.'
Shares in the group closed at 833p on Monday, up 8.3p or 1%.