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The Expert View: Taylor Wimpey, EasyJet and Xchanging
by Michelle McGagh on May 14, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including DCC and Alkane.
New targets for Taylor Wimpey make shares look attractive
Shares in Taylor Wimpey (TW) are beginning to look ‘relatively attractive’ to Peel Hunt as the housebuilder sets outs medium-term targets.
Analyst Clyde Lewis retained a ‘hold’ recommendation and a target price of 127p after management set out medium term targets for 2015-2017 that average 20% operating margin and at least 20% return on net operating assets. It also set out an average 15% increase per year in net assets. Shares jumped 7.9p, or 7.4%, to 114.2p on the news.
‘To us that means forecasts are probably 5-7% light for 2015-2017,’ said Lewis. ‘Given this commitment, we consider the cautious capital return policy announced with the finals looks even more conservative. The shares are now trading on a 10-15% net asset value discount, and this is starting to look relatively attractive again.’
Lewis said that until fears about the overheating property market subsided it would be ‘hard to see the sector performing strongly despite ongoing improvements in estimates’ and he was unable to increase his rating on the company.
Numis backs Easyjet on anticipation of special divi
Numis analysts have retained their ‘buy’ rating for EasyJet (EZJ) despite first half pre-tax losses of £60 million.
The loss was roughly in line with consensus estimates of £53 million and Numis estimates of £58 million, leading analyst Wyn Ellis to retain a ‘buy’ rating and target price of £21.00. EasyJet was yesterday the biggest faller in the FTSE 100, shedding 70p, or 4%, to £16.60p.
Ellis was buoyed by a strong second half outlook statement which noted the opportunity to grow profitability in Europe.
‘EasyJet says that H2 trading is in line with expectations with around 51% of second half seats now booked,’ said Ellis. ‘In our opinion EasyJet has the opportunity to benefit further from the structural changes taking place in short-haul aviation in Europe, including the broadening of the EU “common aviation area” and further market share gains from legacy carriers in current markets.’
Ellis estimated that the budget airline could return at least a further £500 million of cash to shareholders’ through special dividends over the next three years.
‘Buy’ on-target Xchanging, says Investec
Investec has reiterated a ‘buy’ rating for technology provider Xchanging (XCH) as it remains on target for this year.
Investec analyst Andrew Gibb reiterated a ‘buy’ and a target price of 210p following a trading statement from the company. Shares were yesterday flat at 158.8p.
‘The group stated at the time of its full year 2013 results that its aim for this year is “to maintain our current level of operating profit despite the anticipated revenue reduction”. It is therefore encouraging to note the comments in [its trading statement] that year-to-date the group is making good progress and is trading in line to achieve this aim for the year.’
Gibb has reduced revenue forecasts for the company and noted the ‘pace of contract wins remains the key risk’. He said Xchanging appeared to be ‘on track in terms of maintaining its profits whilst continuing to invest in the business to ensure strong growth in full year 2015’.
20-year track record stands DCC is good stead
The growth history for business support services group DCC (DCC) makes it a buy after recent share price weakness, according to Jefferies analyst Justin Jordan.
Jordan reiterated his ‘buy’ recommendation and increased the target price to £36.00 from £32.50. Shares were yesterday up 38p, or 1.2%, at £31.59.
‘DCC has an impressive record of organic and acquisitive growth, fuelling 12% dividend per share compound annual growth rate over the past 10 years,’ he said.
He added that while integrating acquisitions and demand were key risks to the company ‘DCC has an almost 20-year track record of successfully managing these risks’.
Alkane upgraded on shale gas for shares exchange
Alkane Energy (ALK) has been upgraded after making a conditional agreement with Egdon Resources to transfer 10 shale gas licences in exchange for £8 million-worth of shares in Egdon.
Liberum analyst Peter Atherton upgraded Alkane from ‘hold’ to ‘buy’ and increased the target price to 50p from 44p. Shares were yesterday down 2.5p, or 5.7%, at 41.3p.
‘As part of the agreement, Egdon has also undertaken a £6.4 million placing with an associated £600,000 open offer to existing shareholders,’ he said. ‘Our old target price of 44p was a discounted cashflow-based valuation of Alkane’s core generation business and did not have any value for shale gas included. We now reflect the £8 million deal value in our new target price of 50p.’
Atherton added the deal would allow Alkane to focus on growing its ‘core mine methane generation business while gaining exposure to potential shale gas upside’.