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The Expert View: Smiths Group, Aveva and Great Portland Estates
by Michelle McGagh on May 28, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Grainger and Genus.
Smiths Group £25m shortfall leads to downgrade
Engineering company Smiths Group (SMIN) has been downgraded after a write-down in its ‘detection’ business which shaved £25 million from its operating profit guidance.
Investec analyst Michael Blogg downgraded his rating from ‘buy’ to ‘hold’ but retained a target price of £13.85. The shares were yesterday down 14p, or 1.1%, at £13.08. Despite Blogg believing this write-down was a one-off, it has still led him to reconsider the margin expectations for the group.
‘The main feature of the third quarter [trading statement] was a disappointing £25 million charge in detection,’ he said. ‘Although this was ostensibly a “one-off”, we are left thinking that margin expectations in this division need to be pared back.
‘Coupled with small adjustments for currency, our adjusted earnings per share estimates fall by 6.5% for full-year 2014 and 4.5%-5% for later years.’
Rental prospects boost Great Portland to a ‘buy’
Peel Hunt has upgraded Great Portland Estates (GPOR) on strong rental prospects and an increasing development pipeline.
Analyst James Carswell upgraded the stock from ‘hold’ to ‘buy’ and increased the target price from 620p to 720p, after the property developer announced strong results last week. Shares yesterday rose 13p, or 2%, to 650.5p.
The London-centric company is currently working on two developments in the capital and has a further four that will start this year.
‘Following last week’s stellar result, we today confirm our net asset value upgrades, increase our target price and upgrade to “buy”,’ said Carswell. ‘Great Portland looks set to significantly increase its development pipeline into a market with supply constraints and fantastic rental growth prospects. We therefore increase our rental growth and development profit assumptions and this drives a 2015 net asset value of 642p to which the shares currently trade on a 1% discount.’
Landlord Grainger delivers numbers early
Residential landlord Grainger (GRI) has delivered on its 2014 numbers six months early as the property market booms.
Jefferies analyst Robert Duncan reiterated his ‘buy’ recommendation and increased the target price from 271p to 293p. Shares yesterday rose 0.8p, or 0.4%, to 221.5p.
Grainger is landlord to properties with long-term discounted tenancies meaning that when tenants leave the property, it is worth more vacant as it can then be sold on to the owner-occupied market. It has been benefiting from the number of properties coming on to the market and increasing house prices.
‘Grainger delivered our full-year 2014 net asset value six months “early” with house price index (HPI) +7.9% versus UK HPI +4.6%; importantly the investment value: vacant possession ratio in London and the South East narrowed further on strength of demand,’ he said.
‘The rest of the UK lagged but we see it as a “hare vs tortoise” argument; as investor appetite picks up in the regions over the next two to three years, Grainger will benefit.’
Panmure upgrades Aveva after strong results
Better-than-expected results from Aveva (AVV) made investors happy and resulted in an upgrade from Panmure Gordon.
Analyst George O’Connor upgraded the stock from ‘hold’ to ‘buy’ and increased the target price from £21.99 to £22.49.
The company, which supplies IT services to the oil and gas sector, delivered profits before tax, revenue and cash all ahead of expectations and sales of its new offering ‘E3D’ are also better than expected. Shares yestreday surged by 189p, or 8.8%, to £23.50 on the news.
‘Shares are not the cheapest…but we are relaxed with our slightly below the midpoint estimates,’ said O’Connor. ‘The shares comfortably rubbed off any negative read-across from Petrofac [share price falls] and we expect commentary about a strengthening operational backdrop, potential upside from E3D but currency headwinds.’
Genus calls off joint venture
Animal genetics company Genus (GENS) has confirmed it will not be going ahead with a joint venture with agricultural group Yunnan Shennong.
Liberum analyst Sophie Jourdier was not concerned by the decision and retained a ‘buy’ rating and target price of £14.00 on the stock. Shares yesterday shed 20p, or 1.9%, to £10.43.
‘Genus has agreed with Yunnan Shennong that it will not proceed with a joint venture… Genus had intended to invest £2.7 million for a 65% share in a joint venture but no investment has yet been made,’ she said.
‘This was a small joint venture; its cancellation does not affect earnings per share estimates. That said it is a reminder of the challenges Genus faces in progressing its Chinese strategy.’