The Expert View: Tate & Lyle, Pearson and Rightmove

Our daily round-up of analyst recommendations and commentary, featuring Tate & Lyle, Pearson, Rightmove, Ocado and WANdisco.

Key stats
Market capitalisation	£3,789m
No. of shares out	466m
No. of shares floating	462m
No. of common shareholders	not stated
No. of employees	4636
Trading volume (10 day avg.)	1m
Turnover	£3,088m
Profit before tax	£303m
Earnings per share	63.80p
Cashflow per share	86.76p
Cash per share	91.06p

*Correct as at 22 Jan 2013

A transformation year awaits Tate & Lyle, says Berenberg Bank

Ingredients-maker Tate & Lyle (TATE.L) is the 'most undervalued stock in the sector', according to Berenberg Bank analyst James Targett, who has upgraded the shares to 'buy'. The company is also a Citywire Top Stock based on its top 10 position in the Schroder UK Alpha Plus fund managed by Richard Buxton.

'The transformation of Tate & Lyle into a higher growth, less volatile specialty ingredients company is well underway,' Targett said. 'Reducing exposure to the more volatile Bulk division (45% of profits) is key to driving a re-rating.'

At a 12.3x calendar 2014 price-to-earnings ratio, Tate trades at a discount of more than 20% to the food manufacturing sector, he added, or a 15% discount to the broader staples sector.

Following a year of broadly flat profits amid investment in IT systems and sucralose capacity, Targett said the 2014 financial year holds lots of promise. 'Our core structural themes of innovation and specialty ingredient growth remain intact. We see value in stocks where exposure to these themes gives a positive earnings outlook,' he added.

Shares in the group closed at 812p on Tuesday, up 12p or 1.5%.

Key stats
Market capitalisation	£9,682m
No. of shares out	816m
No. of shares floating	797m
No. of common shareholders	not stated
No. of employees	41521
Trading volume (10 day avg.)	2m
Turnover	£5,862m
Profit before tax	£957m
Earnings per share	119.34p
Cashflow per share	151.27p
Cash per share	172.04p

*Correct as at 22 Jan 2013

Pearson shares still deserve ‘overweight’ rating

Analysts at JPMorgan Cazenove have held onto their ‘overweight’ rating for Pearson (PSON.L), unswayed by a profit warning from the education company and Financial Times owner.

The group said in a trading statement that it expects operating profits of £935 million for 2012 and earnings per share (EPS) of 84p, both figures that were slightly lower than City expectations.

‘We attribute the small miss at the operating profit level entirely to the UK training business within the Professional Education division (which the company announced it was shutting down earlier this year), which together with a higher than expected share count also impacted EPS,’ commented the JPMorgan Cazenove analysts.

They added that they were unsurprised that Pearson had warned of tough market conditions in 2013.

JPMorgan Cazenove retained its target price for Pearson shares of 1,238p.

Shares in the group closed at £11.81 on Tuesday, down 21p or 1.8%.

Key stats
Market capitalisation	£1,668m
No. of shares out	105m
No. of shares floating	98m
No. of common shareholders	not stated
No. of employees	293
Trading volume (10 day avg.)	1m
Turnover	£97m
Profit before tax	£46m
Earnings per share	42.29p
Cashflow per share	43.16p
Cash per share	20.17p

*Correct as at 22 Jan 2013

UBS upgrades Rightmove to 'buy'

UBS analyst Alex Hugh has upgraded property website operator Rightmove (RMV.L) from 'neutral' to 'buy' based on its long-term growth potential.

'Rightmove has always had a very attractive competitive profile, with high market share, barriers to entry, pricing power, and long term structural growth,' Hugh said. He added that Zoopla's merger with Find a Property in April doesn't really threaten Rightmove's dominant position.

'There is always a competitor to worry about. One such competitor, PropertyLive has just closed down and that was free to advertise,' he said.

Hugh's target price rises from £16 to £18 based on a 50% probability for his upside scenario, and 50% to base case (compared with base case only previously), reflecting his increased confidence in earnings upgrades.

Shares in the group closed at £15.99 on Tuesday, up 44p or 2.8%.

Key stats
Market capitalisation	£565m
No. of shares out	559m
No. of shares floating	352m
No. of common shareholders	not stated
No. of employees	5180
Trading volume (10 day avg.)	1m
Turnover	£598m
Profit before tax	£0m
Earnings per share	-0.10p
Cashflow per share	5.03p
Cash per share	16.50p

*Correct as at 22 Jan 2013

Shore Capital welcomes board shake-up at Ocado, but it's still a 'sell'

Online grocer Ocado (OCDO.L) has picked the right man to replace Michael Grade as chairman, according to Clive Black of Shore Capital.

Former Marks & Spencer chairman Stuart Rose will fill Grade's shoes at the long-suffering business. 'Sir Stuart is someone we hold in high regard. He is great fun, colourful, opinionated and experienced,' Black said. 'He will bring much needed esteem to Ocado, a company that had a tarnished flotation to our minds and has a fundamentally flawed business model.'

But Black's concerns about the business model means he retains a 'sell' recommendation. 'The business model is just not working,' he said. 'The cost of competing and the cost of fulfilment is just too high; hence it makes meagre cash flows and no earnings never mind dividends.'

The analyst dismissed speculation that Rose's appointment means M&S may be considering a bid for Ocado, saying M&S are 'far too wise' to consider such a move.

Shares in the group closed at 99.5p on Tuesday, up 4.5p or 4.7%.

Key stats
Market capitalisation	£117m
No. of shares out	21m
No. of shares floating	10m
No. of common shareholders	not stated
No. of employees	40
Trading volume (10 day avg.)	0m
Turnover	2m USD
Profit before tax	-1m USD
Earnings per share	-0.04 USD
Cashflow per share	-0.01 USD
Cash per share	0.00 USD

*Correct as at 22 Jan 2013

Panmure cheers WANdisco's China expansion

Software company WANdisco (WAN.L)'s expansion into China bodes well for investors, according to Panmure analyst Giles Leather.

WANdisco, which floated in June, was one of Panmure's 13 top share tips for 2013. Its decision to open an office in Chengdu, China, will allow it to provide sales, training, consulting and 24/7 customer support for its software solutions sold in the country, the analyst said.

'We view China as an emerging and high growth market for WANdisco,' said David Richards, CEO of WANdisco. 'Having secured our first sale in China with Huawei, it was a natural progression to establish our Chengdu office as a Wholly Foreign Owned Enterprise and concentrate our efforts here, given so many companies have operations in the country.'

Although he said the new office ticks off another initial public offering promise, Leather is retaining his 'hold' stance on the shares for now.

Shares in the group closed at 560p on Tuesday, down 10p or 1.8%.