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The Expert View: Taylor Wimpey, Rolls Royce and Rightmove
by Michelle McGagh on Mar 11, 2014 at 05:01
Our daily roundup of analysts' share recommendations and commentary, also including Senior and ITV.
Senior upgraded but Investec remains cautious
Investec has upgraded defence and aerospace engineering company Senior (SNRL) to a ‘hold’ but said challenges still remain for 2014.
Analyst Thomas Rands upgraded the shares from ‘reduce’ to ‘hold’ and increased the target price from 290p to 300p although problems experienced last year will create a hangover.
‘Senior saw multiple headwinds in FY13 and we do not believe FY14 will offer much relief in end markets; to this the current foreign exchange headwinds and we expect limited earnings progression,’ he said.
Rands said ‘there are lots of things we like about Senior’, highlighting ‘good visibility, strong cash generation, the strong balance sheet and conservative management’.
He added: ‘However, the lack of near-term upgrade catalysts – aside from potential cash return – leads up to believe these positive attributes are fairly reflected in the current valuation.’
Taylor Wimpey still a good bet for income despite downgrade
Housebuilder Taylor Wimpey (TW.L) has been downgraded but had its target price increased by Numis analyst Chris Millington.
Millington downgraded the company from ‘add’ to ‘hold’ and increased the target price to 130p.
‘We forecast that Taylor Wimpey will be able to return c.£380 million (c.10% market cap) in 2016, whilst investing in the business and growing its net cash position,’ he said. ‘In our view this makes the shares look attractive relative to the other housebuilders, engaging in cash returns, but on our preferred valuation metric the shares look broadly fair value.’
He added that the ‘income attractions’ of Taylor Wimpey are ‘at least as good as Berkeley and Persimmon in the medium term’ and ‘those looking for income in the sector should be well served by Taylor Wimpey’.
ITV to benefit from BSkyB-BBC fee deal
ITV (ITV.L) could be in line to save £2 million a year following a resolution between BBC and BskyB over retransmission fees.
Liberum analyst Ian Whittaker reiterated a ‘buy’ recommendation and placed a target price of 255p on the shares following news at the weekend that BBC and BSky B have agreed that the former will no longer have to pay the latter to put its channels on BSkyB’s pay-TV platform, saving £4.5 million a year in licence fee money.
This deal will also benefit ITV whose deal with BskyB is now more likely to go through. ITV will also be exempt from BSkyB’s fee, saving around £2 million a year.
Whittaker called the deal a ‘big potential positive for ITV’ and said the channel ‘would gain a double-digit earnings per share boost’ due to the money saved.
Rolls Royce raids cash to buy-out Daimler’s 50% state in engine supplier
Rolls Royce (RR.L) is set to benefit from buying Daimler’s 50% stake in Rolls Royce Power Systems (RRPS).
Cantor analyst Andy Chambers maintained his ‘buy’ recommendation and a target price of £14.40 on news that Daimler is set to sell its stake in RRPS to Rolls Royce three years after the pair acquired the diesel engine supplier that was formerly known as Tognum plus Bergen.
‘The stake is valued at £1.9 billion on Rolls Royce’s balance sheet, with the acquisition being funded from its gross cash balance of £4.3 billion,’ said Chambers. ‘Daimler clearly respects Rolls Royce as a manager of a business whose technology is clearly important to its operations.’
He added that the acquisition should be ‘modestly accretive’ as Rolls Royce is making little income from its cash. However, he said the purchase ‘may reduce speculation about a move for [biogas plant] Wartsila as the deal significantly reduces Rolls Royce cash liquidity’.
Rightmove faces pressure from advertising and rivals
As competition increases within online property search engines, Peel Hunt is taking a cautious view on Rightmove’s ability to stay competitive.
Analyst Malcolm Morgan retained a ‘sell’ recommendation and placed a target price of £18.00 on the shares.
He has three main concerns about the company: the amount of advertising revenue that it can attract; the planned listing of its rival Zoopla in 2015; and the launch of a new portal called Agents Mutual next year.
‘We have taken a cautious view of both average revenue per advertiser increase, and marketing spend in 2015 – a year which may see a Zoopla transaction (which could change the competitive dynamic) and the launch of the Agents Mutual product,’ he said.
‘Our concerns about competition have underpinned our – hitherto premature or wrong – ‘sell’ recommendation, outweighing the more obvious merits of the company.’