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The Expert View: Standard Life, William Hill and Capita
by Harry Brooks on Aug 22, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Afren and ITV.
Our daily round-up of analyst recommendations and commentary, featuring Standard Life, William Hill, Capita, Afren and ITV.
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BoA upgrades Standard Life on share-price slump
The recent dip in Standard Life (SL.L) following a disappointing financial update two weeks ago makes the shares worth consideration once more, according to Bank of America Merrill Lynch, which has upgraded the insurer and asset manager from 'underperform' to 'neutral'.
The shares are down 11% over the past two weeks compared with a less than 2% decline in the insurance industry's SXIP index.
As well as the valuation, analyst Andrew Sinclair said SL's unimpressive inflows had been a factor in his negative stance on the shares. However, he's beginning to feel more optimistic on its prospects.
'The company remains well-placed to gain further business in the UK corporate space, particularly if it is able to capture back-books of corporate clients,' he said. 'The company is also well-placed to benefit from any recovery in the UK retail market as advisers adjust to the post-RDR world.'
Sinclair now sees 10% upside to the current share price, with his price target resting at 360p.
Shares in the group closed at 344.6p on Wednesday, up 1.7p or 0.5%.
Nomura upgrades William Hill, downgrades Ladbrokes
William Hill (WMH.L) is now the pick of the UK's gambling outfits because of its dominant position in the mobile market and ambitious plans down under, according to Nomura.
Analyst Richard Stuber has upgraded WMH from 'reduce' to 'buy' and simultaneously downgraded Ladbrokes (LAD.L) to 'reduce', saying that while two years ago there was little to separate the two leading UK bookies, they've taken very different paths recently.
William Hill has diversified geographically, with UK retail now accounting for only 43% of revenues, while Ladbrokes still makes 71% of its revenues in the UK.
The mobile market is also an important factor in his change of preference: 'Mobile is the most important growth market, and first-mover advantage is critical, given ‘app’ loyalty. WMH’s ‘app’ has 4x the market share of LAD’s (38% vs 9%), and used twice as often,' he noted.
'Mobile betting also results in higher gross win margin (circa 280 basis points vs online ex. mobile), therefore WMH’s 4x turnover should continue to grow net revenue and marketing budget, and consequently bolster WMH’s ability to maintain its online growth trajectory.'
Shares in the group closed at 432p on Wednesday.
Panmure Gordon upgrades Capita on e-tagging win
Panmure Gordon has upgraded Capita (CPI.L) from 'sell' to 'hold' after the outsourcing giant was named as the Ministy of Justice's preferred bidder for a £400 million electronic tagging contract.
Capita's win didn't come as much of a surprise after the other bidders, Serco and G4S, pulled out due to the recent Cabinet Office enquiry. The contract will begin next year, and will be worth £400 million over the coming six years.
Analyst Mike Allen remains cautious on Capita given slim margins, but he said recent wins support upside potential to his earnings forecasts.
'We remain concerned about the direction of margins, returns and overall earnings quality but believe the near term growth momentum could deliver earnings upside from here,' he said.
'It is also interesting to see Capita expand in areas such as Justice & Defence, which could also take the business into new international markets further down the line.'
Shares in the group closed at 988.5p on Wednesday, down 8.5p or 0.9%.
'Buy' Afren, Westhouse urges
Westhouse has reiterated its 'buy' recommendation on Afren (AFR.L) ahead of tomorrow's first-half update.
Analyst Dragan Trajkov predicts production of 43.5k barrels a day (b/d), slightly lower than the already reported first-quarter production of 47.1k b/d.
He's also expecting an update on the company's operations in Nigeria and Kurdistan. 'Following the exploration success in Ogo-1 well in Nigeria, the company is currently drilling a side-track well targeting gross 124 million barrels of oil equivalent (40% interest to Afren),' he said.
'In Kurdistan, in its last interim statement the company suggested that the Simrit-3 well had reached the final depth encountering hydrocarbon bearing intervals.'
Shares in the group closed at 144.1p on Wednesday, up 2.7p or 1.9%.
ITV has further to go, Galvan Research argues
ITV (ITV.L)'s remarkable ascent over the past year still leaves ample room for share-price appreciation, according to Galvan Research, which has a 'buy' recommendation on the broadcaster.
'After a multi year bear market for the shares, there are still ample fundamental and charting positives to keep the ITV turnaround story powering ahead,' analyst Thomas Light said.
'With double digit revenue growth expected for ITV Studios and Online, Pay & Interactive this year, and with expectations of a new surge advertising revenue going into next year, the future has never looked better for the broadcaster.'
Morgan Stanley lifted its target price for ITV from 175p to 185p on Wednesday, highlighting a potential upswing in UK advertising and reiterating its 'overweight' position on the group.
Shares in the group closed at 163.7p on Wednesday, up 1.8p or 1.1%.