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The Expert View: Tesco, Cranswick and Abcam
by Michelle McGagh on Apr 08, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Waterlogic and ITE.
Sell ‘uninvestible’ Tesco, says Shore Capital
Shore Capital has reiterated its ‘sell’ recommendation for Tesco (TSCO.L), arguing a high level resignation had removed ‘another brick out of Tesco’s wall’.
Analysts Clive Black and David Shirley said the resignation of chief financial officer Laurie McIlwee was ‘symptomatic…of a business that is not at ease with itself, united in its direction and comfortable within its own skin’, especially in its core UK market.
He reiterated his ‘sell’ recommendation on the shares, which were trading down 4.1p at 283.3p yesterday.
‘The Tesco investment case has become the cliché of “catching a falling knife”,’ said Black. ‘To our minds any new chief financial officer has therefore to set an achievable base profitability for Tesco to meet, even it if is materially below current expectations. Once Tesco starts hitting estimates, brokers and investors can start treating the shares as “investible”.’
Underrated Waterlogic upgraded by Liberum
Water cooler supplier Waterlogic (WTL.L) has been upgraded on the back of share price underperformance. Liberum analyst David Brockton has upgraded his recommendation from ‘hold’ to ‘buy’ on the shares and placed a target price of 110p on them. The stock was trading down 3p at 79p yesterday.
Brockton’s upgrade comes as the full year 2013 earnings per share came in 2% above his forecast and ‘progress continues to be made in both commercial and consumer, and trading in full-year 2014 has started well’.
The company has also managed to reduce its reliance on unit sales after increasing proceeds from rental and service accounts, which now account for 40% of revenue.
‘A period of forecast delivery and notable share price underperformance prompts us to upgrade to “buy”,’ said Brockton. ‘Waterlogic trades at a notable discount to peers.’
ITE still looks good providing Ukrainian crisis settles
A recent share price collapse for trade conference organiser ITE (ITE.L) has not deterred Peel Hunt analysts who still see value in the company.
Analyst Malcom Morgan said the shares were hit by continuing tension in Ukraine and although he has maintained a ‘buy’ recommendation he has reduced the target price to 280p from 300p. Yesterday the shares were trading down 8.2p at 195.8p.
‘We believe revised forecasts are consistent with a slow thawing of relations, but not a further escalation in tension,’ he said. ‘The pre-crisis rating aspirations are no longer tenable, but nor should it be assumed that the company will be passive in the face of the change in circumstances.
However, Morgan’s positive outlook for ITE comes ‘with the material caveat that we assume no further escalation in tension’.
Abcam upgraded to ‘hold’ after drop in shares
Antibody supplier Abcam (ABC.L) has seen its shares slump on confusion over its future but Canaccord Genuity has upgraded the stock.
Analyst Julie Simmonds upgraded the stock from ‘sell’ to ‘hold’ but reduced the target price to 375p from 386p. The shares were trading down 2.5p at 375.5p yesterday.
‘Following a 27% decline in the share price since [its results] we upgrade our recommendation to ‘hold’ as we believe the long-term outlook for Abcam remains intact,’ she said. ‘We believe the long term opportunity for Abcam remains significant, as the research use of antibodies will continue to grow and Abcam remains a leader in this market.’
However, Simmonds noted the poor performance of custom antibodies in the first half of the year and said she would ‘need improved visibility on long-term growth to become more positive, despite the fundamental attractiveness of the market’.
Pork supplier Cranswick offers positive fourth quarter results
Meat and sandwich supplier Cranswick (CWK.L) has announced a positive fourth quarter update, with increased sales and reduced debt.
Numis analyst Charles Pick retained a ‘hold’ recommendation on the shares but increased the target price from £12.15 to £12.60. Shares were trading down 4p at £12.73 yesterday.
The supplier of pork, bacon, sausages and sandwiches to brands such as Weight Watchers increased like-for-like sales 12% in the fourth quarter and reduced net debt. However, Pick noted that input costs were ‘not fully recovered in the fourth quarter’ and capital expenditure was £25 million versus £30 million previously indicated as likely, which has pushed some of the spend into this year.
Pick said ‘the record of Cranswick is a good one’ and said the input cost hurdle could be ‘a sign of more mergers and acquisitions being considered’.