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The Expert View: Serco, ITV and Standard Life
by Michelle McGagh on May 02, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Lancashire and Kazakhmys.
Sell scandal-hit Serco, urges Investec
Investec analyst Andrew Gibb has delivered a withering assessment of Serco (SRP.L), after the embattled government outsourcing group raised £160 million through a share placing in the wake of chief financial officer Andrew Jenner.
Gibb retained a ‘sell’ rating and placed the target price under review. Serco, which was caught up in a scandal over the tagging of prisoners last year, fell 1.6p, or 0.5%, to 338.6p yesterday.
He said the market needed to ask three questions of Serco: ‘Will this be the last downgrade? What does full year 2015 look like – will it be worse than 2014? And is this the last time investors have to reach into their pockets?’
‘In our view, none of these questions can be answered with any confidence.’
He added: ‘Confirmation that the strategic review is set to take nine months to complete, means that the market will have to wait until the full year 2014 results in March 2015 for a clear indication of the turnaround story. Given the quantum of downgrades delivered in the past six months, this is a long time to wait.’
ITV still top pick despite Channel 5/Viacom deal
Liberum is sticking by its ‘buy’ recommendation for ITV (ITV.L), dismissing the threat posed by US TV giant Viacom’s acquisition of Channel 5.
Viacom yesterday announced it had agreed to buy ITV rival Channel 5 for £450 million from Richard Desmond’s Noprthern & Shell group.
Analyst Ian Whittaker kept his target price of 255p on ITC shares, saying the Channel 5 deal would not pose a threat to programming or advertising revenue. Shares were up 5.5p, or 3%, at 187.4p yesterday.
Whittaker predicted Viacom was ‘likely to push the case for retransmission revenues to be allowed for the five main channels’ – retransmission fees are paid by the channels to include cable TV channels on their pay-TV packages.
‘ITV’s main appeal is the mass market audience of ITV1, which Five cannot replicate,’ said Whittaker. ‘[Five] could, however, be a threat to Channel 4.’
Kazakhmys receives a cautious upgrade
Cooper miner Kazakhmys (KAZ.L) has been upgraded by Numis, although analyst Cailey Barker is waiting ‘with bated breath’ for the outcome of a company restructure.
Barker upgraded the stock from ‘reduce’ to ‘hold’ and increased the target price from 240p to 260p. Shares were down 3.9p, or 1.6%, at 234p yesterday.
He noted production results for the first quarter were ‘a little light on expected’, however the bigger challenge would be the restructure that will commence when it starts commercial production from a new mine.
‘We retain caution for now and wait with bated breath pending the restricting of the new company expected later this year, which we see as value accretive but challenging and risky to the balance sheet,’ he said.
Lancashire is all adversity and no triumph, says Peel Hunt
Insurer Lancashire (LRE.L) is failing to impress Peel Hunt analysts with a slew of adverse developments.
Analyst Mark Williamson retained a ‘hold’ and put the target price under review from its previous marker of 893p. The shares were down 23p, or 3.3% at 677p yesterday.
Even though first quarter result were in line with expectation, they were overshadowed by the shock departure of chief executive Richard Brindle.
‘The sudden and unexpected departure of Richard Brindle comes at an odd time for the group given the significant shift in strategy embarked upon last year which has seen the group move form a single strategy – based on underwriting the top layers of risk – to a three-pronged strategy, with Lancashire continuing…[to underwrite]…lower layers of risk…and acting as a manager of third party capital,’ he said.
‘Moreover, underwriting performance is overshadowed by prior period adverse developments and this is starting to occur too often. Given the uncertainties that currently exist, we maintain a “hold” recommendation.’
Standard Life well positioned but savings business needs to pick up
Life insurer Standard Life (SL.L) has reported a mixed quarter with positive investment inflows but an annuity business hit by Budget changes.
Barclays analyst Alan Devlin retained an ‘equal weight’ rating but increased the target price from 366p to 386p. Shares were down 2.1p, or 0.6%, at 384.3p yesterday.
‘Standard Life reported a mixed quarterly update, with Standard Life Investments flows showing strength at £2 billion but a more pedestrian performance from the savings business,’ he said. ‘While annuity sales post-Budget are running around 50% lower, management spoke confidently around Standard Life’s position in the new landscape, especially given its number one position in the drawdown market.’
Devlin said Standard Life was ‘among the most attractive in the space’ but ‘it is clear that savings flows need to pick up in order to drive the stock higher’.