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The Expert View: Thomas Cook, Associated British Foods, ITV
by Michelle McGagh on Apr 24, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Premier Foods and SIG.
Thomas Cook back in the game, says Barclays
Travel agent Thomas Cook (TCG.L) has been upgraded by Barclays which believes after years of underperformance the company is finally playing catch up.
Analyst Patrick Coffey upgraded the rating to ‘overweight’ and increased the target price from 100p to 230p on the shares, which were trading up 4.4p, or 2.5%, at 178p yesterday.
He said Thomas Cook was ‘the cheapest leisure stock in the European leisure sector’ and expected the company to start paying a dividend again in 2016.
‘The recipe to success – take a company in financial turmoil, turn it around, make sure some dough is raised, add two rounds of cost savings, stir internally, reduce fat, and add a dividend to finish. Total cooking time three years,’ said Coffey.
‘We do not believe the market is yet pricing in any material earnings upgrades despite the current management team’s track recover of over-delivering. We are 8% ahead of company-compiled consensus expectations in full year 2016 and see further upside risk.’
Primark US expansion means upgrade for parent Associated British Foods
Associated British Foods (ABF.L) has been upgraded after its Primark chain announced a move into the US.
Panmure Gordon analysts Graham Jones and McNeela upgraded the stock from ‘hold’ to ‘buy’ and upped the target price from £27.60 to £32.10 on news that the Primark brand would be launched in the north east of the US at the end of next year. Markets reacted well to the news, with shares soaring by 240p, or 8.8%, to £29.54.
‘ABF has delivered another period of strong profit growth, with earnings per share rising by 10.4% to 45.8p, 2.9% ahead of our 44.5p forecast,’ Jones and McNeela said.
‘Primark starred again with 26% growth… the stand-out news however is the announcement that Primark will enter north-east USA towards the end of next year. This is sooner than we had anticipated, and whilst Primark will continue its measured approach to expansion, in our view this significantly increases growth potential of Primark.’
ITV a ‘top pick’ for Liberum
Liberum has reiterated ITV (ITV.L) as a ‘buy’ after strong results for Scottish station STV which holds the ITV1 licence in Scotland.
Analyst Ian Whittaker retained a target price of 255p on the shares, which were trading down 1.2p, or 0.6% at 187.4p yesterday.
‘We would see the read-across from STV as positive for ITV, with the first quarter slightly ahead of expectations and the outlook positive. [We] reiterate ITV as our top pick,’ he said.
STV’s first quarter interim management statement showed TV advertising revenues were slightly ahead of expectations and guidance for April revenues are in line with ITV estimates. A slew of advertising is expected as the World Cup approaches, as advertisers have held back in the first part of the year to wait for the sporting event.
Supermarket price war doesn’t mean Premier Foods is down and out
Jefferies has resumed coverage of Premier Foods (PFD.L) at a ‘buy’ but admitted the changing landscape of UK food retailing would ‘make life more challenging’ for the company.
Analyst Martin Deboo placed a target price of 90p on the shares, which were trading up 2.5p, or 4.1%, at 63.5p yesterday.
‘Premier Foods is off 40% from its post-refinance high, on fears of a price war in UK grocery. We think this is overdone and can explain less than half of the markdown logically,’ said Deboo. ‘The environment may have changed for the worse, but Premier Foods is a company that has changed for the better. We think they can handle the pressure, consistent with delivering current full year 2014 expectations.’
He added that while many would say a supermarket price war coupled with leverage with Premier Foods would equate to a sell, the sell-off of the company – which owns the OXO and Kipling brands among others – has been ‘overdone’.
SIG operations overhaul ensures it’s a top pick for Peel Hunt
Sheffield-based provider of insulation and specialist building materials SIG (SHI.L) remains Peel Hunt’s top pick among builders’ merchants as analysts predict ‘sector-beating growth’ over the medium term.
Analyst Clyde Lewis reiterated his ‘buy’ recommendation and increased the target price on the shares from 260p to 275p. They were trading down 1.7p, or 0.8%, at 200.5p yesterday.
‘SIG is our top pick among the builders’ merchants, because we believe the combination of self-help, cyclical recovery and organic growth/ acquisitive bolt-ons will see margins move up to 5.7% by 2016 with more to come in 2017/18,’ he said.
‘This will ensure SIG delivers sector-beating growth over the medium term, and this in turn will see its rating climb.’
Lewis added that while SIG had underperformed its peers in terms of margin in the past decade, ‘the new CEO and CFO are now making major changes that will see the gap closed on its peer group through relatively low-risk operational changes’.