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The Expert View: TalkTalk, Serco and ASOS
by Harry Brooks on Oct 21, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Hutchison China MediTech and Andor Technology.
Our daily round-up of analyst recommendations and commentary, featuring TalkTalk, Serco, ASOS, Hutchison China MediTech and Andor Technology.
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TalkTalk's margin ambitions 'fanciful', Berenberg says
Voice and broadband services provider TalkTalk Telecom (TALK.L)'s earnings are moving in the wrong direction and it's now fighting on a number of fronts, Berenberg Bank has warned.
The company's interims are due next month, and analyst Barry Zeitoune is pessimistic. 'The news has not been good,' he said, noting that the most bullish analysts have cut their earnings estimates for the period by as much as 50%.
'We believe management has in the past been strategically astute, and giving free TV boxes away should aid long-term churn,' Zeitoune said, referring to the company's decision to give away 500,000 TV boxes to subscribers. Even excluding the cost of this move consensus earnings estimates indicate a 14% decline year-on-year.
'With unregulated fibre, and BT fishing in the same Freeview pond, longer-term 25% margin estimates look fanciful,' he added, reiterating his 'sell' recommendation.
Shares in the group closed at 262.1p on Friday, up 2.2p or 0.9%.
Serco to suffer as government turns on outsourcers, Liberum warns
Politicians' eagerness to appeal to voters with high-impact policies will have an increasingly pronounced impact on share prices, according to Liberum Capital, and it's named outsourcing group Serco (SRP.L) as one possible loser.
'The government witch hunt of outsourcers is popular: it lambasts big business, champions tax payers' interests and portrays labour as incompetent (escorting was actually a coalition contract),' analyst Joe Brent said, referring to the investigation into Serco’s prison escorting contract.
'We now believe that the outsourcing agenda will be delayed, and there will be limited opportunities ahead if the hiatus before the election, the election uncertainty and the stasis that normally follows an election,' the analyst added. He currently has a 'hold' recommendation on the shares.
All of the other big outsourcers (G4S, Bancock, Capita and MITIE) also stand to lose as the government turns against the sector, he added.
Shares in the group closed at 523.8p on Friday, up 1.3p or 0.2%.
'Buy' ASOS ahead of a strong annual update, Panmure says
Online fashion retailer ASOS (ASOS.L) is set to impress with its upcoming annual results, according to Panmure Gordon, which reiterated its 'buy' recommendation on the shares.
Due on Wednesday, the results will be boosted by a consensus-beating 46% rise in fourth-quarter revenues. The consensus among analysts for the full-year pre-tax profit take is now £53.7 million.
'We expect UK growth rates to moderate in FY 2014E and international to accelerate,' analyst Simon French said.
'The group’s dedicated Chinese website will launch at the end of this month and we expect it to incur circa £6 million of investment in FY 2014E to support this.'
French's discounted cashflow model throws up a target price of £59.50, leaving about 14% upside potential.
Shares in the group closed at £54.02 on Friday, up 97.7p or 1.8%.
UBS lifts target price for Hutchison China MediTech
UBS has upped its target price for Hutchison China MediTech (HCM.L), which it rates as a 'buy', having been encouraged about the quality of its drugs pipeline.
HCM recently held a research and development day which highlighted its deal to make cancer drug Fruquintinib with Eli Lilly in China.
'Although Chi-Med R&D was seen a few years ago as mostly a cost line on the P&L, management has almost continuously delivered on its promise to push the pipeline forward and finding quality partners and continues to make us increasingly confident in the value of this pipeline,' analyst Guillaume van Renterghem said.
After the deal with Eli Lilly van Renterghem reckons the chance of success for Fruquintinib is increased, and based on this plus two other drugs in the pipeline his target price rises from 600p to 700p.
Shares in the group closed at 630p on Friday, up 2.5p or 0.4%.
Investec lifts target price for Andor Technology
Investec has bumped up its target price for Andor Technology (AND.L) following the scientific digital camera maker's acquisition of Canadian rival Spectral Applied Research.
Andor will pay £6.8 million upfront, plus another £3 million if agreed average operating profits are achieved over the first three years of ownership.
Analyst Thomas Rands said the buy-out made strategic sense, and he reiterated his 'buy' recommendation on Andor's shares.
'There is significant overlap with Andor’s current activities, with the key areas being integrated laser engines, its Borealis illumination systems and new Diskovery platform. We see these as highly complementary to Andor’s existing product offering,' he said. The analyst's target price rises 4% to 460p.
Shares in the group closed at 396p on Friday, up 10p or 2.6%.