Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/wealth-manager/gallery/a712638
The Expert View: Serco, EnQuest and Aggreko
by Harry Brooks on Oct 29, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Sage and Phoenix IT Group.
Our daily round-up of analyst recommendations and commentary, featuring Serco, EnQuest, Aggreko, Sage and Phoenix IT Group.
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.
Beware the Serco value trap, Shore Capital warns
Investors should take care not to fall into a value trap with troubled outsourcer Serco (SRP.L), Shore Capital has warned.
On Friday chief executive Chris Hyman resigned in the wake of the Serious Fraud Office investigation into claims it overcharged the government to the tune of tens of millions of pounds for prisoner electronic tagging services.
'In our view, that Serco’s CEO is to leave the company in response to the UK Government investigation into its contracts with the company, does assist in bringing forward resolution of the company’s future relationship with this key client,' Shore Capital's Robin Speakman said.
'However, it could also be taken as an acceptance that wrong doing requiring contract renegotiation (and probable compensation) is also to follow.'
The firm's not likely to issue its guidance on the full impact of the investigation until its final results at the end of February, and in the meantime Hyman urges caution: 'We continue to see significant risk in chasing ''value'' in Serco.' he said.
Shares in the group closed at 556.8p on Monday, down 0.7p or 0.1%.
Liberum Capital upgrades EnQuest to 'buy'
Liberum Capital has upgraded UK-focused oil explorer EnQuest (ENQ.L) from 'hold' to 'buy', saying a recent acquisition could fix its infrastructure problems in the North Sea.
EnQuest has paid $39.9 million, plus a deferred consideration of $30 million, for a 50% interest in the Greater Kittiwake Area, the rights to which are owned by Centrica.
Liberum's Kate Sloan said the purchase price looks reasonable if not transformative based on the reserves, but she said the inclusion of the Kittiwake-to-Forties oil pipeline could be of strategic interest as it may provide an infrastructure solution for the nearby Scolty and Crathes developments.
'Existing projects should double production by 2017 and we believe EnQuest has the capacity to maintain growth above and beyond. Our revised PT is 174p,' Sloan said.
Shares in the group closed at 133.9p on Monday, up 1.5p or 1.1%.
Aggreko still a 'buy', Panmure Gordon says
Panmure Gordon has reduced its target price for temporary power provider Aggreko (AGK.L) but it retains a 'buy' recommendation on the shares.
Aggreko's third-quarter update was in line with expectations: underlying revenues were marginally ahead of last year, and the group expects both revenues and margins to be a bit ahead of last year when the full-year results are published.
Analyst James Cooke tweaked his target price from £18.22 to £17.36 partly on the basis of currency moves, but he remains bullish overall.
'All to play for in our opinion, with a prospect pipeline which remains highlyencouraging but a conversion rate that leaves Q4 an important period,' he said.
'Outlook for capital expenditure offers some encouragement for optimism in 2014, but early days yet. Given the negative expectations ahead of this update, we feel this should be taken well.'
Shares in the group closed at £15.93 on Monday, up 75.8p or 5%.
Jefferies upgrades Sage to 'buy', dismisses cloud fears
Jefferies has upgraded enterprise software firm Sage (SGE.L) from 'hold' to 'buy' following a decline in the shares.
'Sage has come under pressure in recent months as the market has seemingly become impatient with the lack of momentum on transformation with respect to the Cloud,' analyst Milan Radia said, referring to concerns that cloud computing could undermine Sage's core market.
'In fact, the pure Cloud vendors overlap with only c.10% of Sage's revenue, rendering the competitive threat relatively modest. In the meantime, Sage is busy with Cloud versions of its mid-market applications.'
Radia has increased his target price from 320p to 380p, based on a discounted cash flow valuation model.
Shares in the group closed at 334.03p on Monday, up 2.1p or 0.6%.
Investec downgrades Phoenix IT Group on profit warning
Investec has downgraded Phoenix IT Group (PNX.L) from 'buy' to 'hold' following a profit warning from the business.
The group announced that an unnamed buyer of its services has terminated its contract, and it estimates that the impact will be somewhere around the £2 million mark.
Investec's Julian Yates downgraded the shares pending further details on the contract. 'Ahead of further details, we lower our target price to 145p (11x FY14E EPS) and, in anticipation of share price weakness this morning, move our recommendation to Hold,' he said.
Shares in the group closed at 146p on Monday, down 16p or 9.9%.