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The Expert View: Wetherspoons, BAE Systems and Balfour Beatty
by Michelle McGagh on May 08, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including ITV and CRH.
Wetherspoons loses its fizz despite solid third quarter
Pub chain JD Wetherspoons (JDW.L) has been downgraded following a period of outperformance and disappointment in third quarter margins.
Peel Hunt analyst Nick Batram downgraded the stock from ‘buy’ to ‘hold’ with a target price of 884p. Shares were down 2.4% at 832p yesterday.
He said that despite a ‘solid’ third quarter the pub chain’s trading statement highlighted a slow Easter and the unpredictable nature of the football World Cup which could mean the fourth quarter would not be able to compete with strong results over the same period last year.
‘The top line continues to perform well but there is some disappointment that the margin remains towards the bottom end of guidance,’ he said. ‘After a strong run the shares are close to our target price and, given the outperformance against the market and sector, we move to a “hold” from a “buy”.’
US and UK defence budget certainty boosts BAE
After recent uncertainty in US defence spending abated, defence and aerospace group BAE Systems (BAES.L) is now looking like good value according to Investc.
Analyst Chris Dyett retained an ‘add’ rating and target price of 430p on the shares. Yesterday the stock was up 1% at 401.5p.
He said increasing certainty over US defence spending, the signing of a Saudi price escalation contract and a predictable UK defence budget had provided ‘a better backdrop for BAE in 2014 than in previous years’ and that excluding the impact of stronger sterling, trading had been in line with expectations.
‘BAE shares trade at a discount to US defence peers, have around a 5% dividend yield with potential for additional shareholder returns and further accretion from the share buyback,’ said Dyett. ‘An increase in long term interest rates is likely to be positive for shareholders…as this will help to reduce BAE’s large pension deficit.’
Balfour share price fall makes it a ‘buy’
A profit warning saw the chief executive of Balfour Beatty (BALF.L) step down this week but the ensuring share price fall is time to buy into the stock, according to Numis.
Analyst Howard Seymour retained an ‘add’ recommendation but lowered the target price to 260p. Shares were down 1.6% yesterday at 225p, after falling 20% in the wake of the profit warning.
He said UK construction would remain a problem until management ‘can demonstrate the numbers have bottomed and that Balfour can benefit from the wider construction recovery’.
‘The proposed sale of [Balfour’s consulting arm] Parsons Brinckerhoff and departure of the chief executive come as additional shocks and raise questions about strategic direction going forward,’ said Seymour. ‘We lower our target price, but after… share price decline retain a positive recommendation as we continue to believe that the sum of the parts is greater than the current share price.’
ITV’s acquisition makes it a ‘serious player’
News that ITV (ITV.L) has acquired US reality TV show producer Leftfield for $360 million has led Liberum to reiterate its ‘buy’ recommendation.
Analyst Ian Whittaker reiterated his positive stance and target price of 255p and called the deal ‘a big strategic positive’ that made ITV ‘an even more serious player in the US reality entertainment market’. Yesterday the shares were up 0.9% at 187.5p.
‘This strengthens considerably ITV’s content business, both by significantly increasing its US exposure and in acquiring formats that can be easily replicated globally. It should also provide a healthy level of accretion,’ he said, adding ITV was his ‘top pick’ in media.
CRH earnings increases already built in to price
Building material manufacturer CRH (CRH.L) is predicting half year earnings to increase by a quarter on last year but Jefferies analysts say the good results are already priced in.
Analyst Sam Cullen retained a ‘hold’ rating and target price of £17.00 on the shares, which he said were ‘fairly valued’. Yesterday they were trading down 3.5% at £16.79.
‘CRH expects half year earnings before interest, tax, depreciation and amortisation (EBITDA) to be around €500 million (£410 million), 26% ahead of last year’s figures, as the group benefits from an improving European outlook and easier weather comparison,’ said Cullen.
‘[Yesterday’s] guidance implies second-half EBITDA growth of 14% based on consensus estimates. However, given the current valuation and management’s relatively cautious tone for the full year we believe this is already reflected in the share price.’