Citywire printed articles sponsored by:
View the rest of this gallery online at http://citywire.co.uk/wealth-manager/gallery/a699890
The Expert View: Vodafone, Serco and Rolls-Royce
A roundup of some of the best analyst commentary on shares, also including IAG and Admiral.
Our daily round-up of analyst recommendations and commentary, featuring Vodafone, Serco, Rolls-Royce, IAG and Admiral.
If you'd like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites. To buy shares via JP Morgan, click on the shopping trolley icon.
Vodafone special divi hopes raised amid Verizon talks
Vodafone (VOD.L) remains a ‘conviction buy’ for Nomura analysts after the mobile phone group said it was in advanced talks with Verizon Communications to sell its 45% stake in their US joint venture Verizon Wireless for about $130 billion (£83.75 billion).
This would mark an increase on the $100 billion reported when talks between the two companies first surfaced in April.
‘We think confirmation of a Verizon bid for Vodafone’s US asset and a revaluation of Vodafone’s rump valuation amidst a consolidating climate will lead to further outperformance for Vodafone shares,’ said the Nomura analysts, in reference to a growing number of M&A deals in the European telecoms industry.
Shares in the telecom giant have risen by a third this year, valuing the group at just over £100 billion, although yesterday was the first time the price has broken past 200p.
Such a big disposal would enable Vodafone to repay some debt and pay special dividends to shareholders.
Nomura speculated that the special dividend could be 50p per share, an increase from their earlier estimate of 35p.
Shares in the group closed at 204.8p on Thursday, up 15.5p or 8.2%.
Cantor Fitzgerald downgrades Serco on prison fraud claims
The possibility that Serco (SRP.L) could be banned from any future UK government work has pushed Cantor Fitzgerald to downgrade the outsourcing giant from 'buy' to 'hold'.
The Ministry of Justice, together with Serco itself, has asked the City of London police to investigate allegations of fraud over its £285 million prisoner transport contract. If Serco fails to convince the government within three months that it can change its ways it will lose all future UK government work, which accounts for some 50% of current revenues.
Although this 'doomsday scenario' is unlikely to happen, according to analyst Caroline de Soujeole, the possibility can't be fully discounted.
'Although we are encouraged that the MoJ is giving Serco an opportunity to mend its ways, give the now significant uncertainty over Serco's operations in the UK, we have downgraded our recommendation from BUY to HOLD,' she said.
Shares in the group closed at 538.5p on Thursday, down 68p or 11.2%.
‘Great entry point’ for Rolls Royce shares
Investors have before them a ‘great entry point’ into Rolls Royce (RR.L) shares, said Bank of America Merrill Lynch analysts as they reiterated their ‘buy’ recommendation on the stock.
In a research note they tell clients to ‘buy the dips’ in civil aerospace stocks after a recent underperformance of other European industrial shares.
The fundamentals remain supportive, analysts Celine Fornaro and Emmanuel Bousquet said. These include: demand for aircraft replacement, growing global traffic, airlines’ historically strong financial position and accessible financing.
Their top pick remains pan-European EADS. But they reiterated buy ratings on both Rolls-Royce and Meggitt, ‘with both exposed to the civil OE/ aftermarket growth and with some execution angle on prof it/ cash suggesting further rerating potential.’
For Rolls shares, which have endured one of their ‘strongest pull backs since late 2010’ after the poor progress acknowledged in recent first half results, now is a ‘great entry point’, with management ‘focused on improving profitability and cash returns’.
Shares in the group closed at £11.16 on Thursday, up 24p or 2.2%.
Oil price airline hit creates buying opportunity
The rising oil price – underpinned by the threat of Western strikes in Syria – could provide investors with an opportunity to buy dipping airline shares, say analysts at Jefferies.
Though they haven’t changed their recommendations for the sector, the analysts say: ‘Geopolitical uncertainties are an investment hazard in the airlines industry and the current situation presents an interesting opportunity to invest on attractive valuations.’
Their FTSE 100 airline ‘buy’ choice remains IAG (IAG.L), alongside Ryanair and Lufthansa. They reiterate their ‘hold’ rating on easyjet.
‘Clearly the current position of political uncertainty is not helpful to investors. Historically we have seen before how stocks hit by geopolitical threats (like Volcanic ash cloud and 'Arab Spring') can also bounce back quickly too,’ say the Jefferies team.
According to an analysis of the various fuel-hedging positions of different airlines, Ryanair is least exposed to a rising oil price and Air France-KLM most.
Shares in the group closed at 292.4p on Thursday, up 5.4p or 1.9%.
'Sell' Admiral Group, Berenberg Bank says
Berenberg Bank has reiterated its 'sell' recommendation on Admiral Group (ADM.L), arguing changes in the UK's motor industry can only spell bad news for the insurer.
Yesterday's first-half results were slightly ahead of expectations, with earnings per share and dividend per share of 50.1p and 48.9p respectively 2% and 5% ahead of consensus estimates. Profits before tax came in at £181 million.
Nonetheless, analyst Peter Eliot said the UK market presents a major problem: 'UK turnover is showing a heavy decline given the falling premium rates while group turnover is being supported by growth in unprofitable international operations.
'UK vehicle count was flat and turnover was down 10%. We do not consider the reported loss ratio of 67.2% for H1 2013 to be sustainable. Ancillary income is down to £73/vehicle from £79/vehicle at FY12.'
Shares in the group closed at £12.70 on Thursday, down 20p or 1.6%.