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The Expert View: WH Smith, Hilton & Babcock
by Michelle McGagh on Mar 28, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including DMGT and Marshalls.
WH Smith to benefit from high street progress
Improvements on the high street and in travel will benefit WH Smith (SMWH.L) according to Investec, which has increased its target price for the stock from £12.00 to £14.00.
Analyst Kate Calvert reiterated Investec’s ‘buy’ recommendation on anticipation of strong first half results for the newsagent and further indication of franchising plans. She said she was also expecting more detail from management on its personalised card business Funkypigeon.com.
‘We expect management to say more on WH Smith newsagent franchising and potentially on Funkypigeon, which could be a hidden gem if the Photobox (owners of Moonpig) valuation being talked about in the press is anything to go by,’ she said.
Calvert expects profits for the first half of the year before tax to fall slightly due to pension commitments with second half profits becoming stronger following ‘steady progress’ from the high street and as travel continues its cyclical recovery.
Hilton faces headwinds but still manages upgrade
Meat packaging company Hilton Foods (HFG.L) may be facings currency headwinds and had its forecasts trimmed but Numis has still upgraded the stock.
Analyst Charles Pick has upgraded the company from ‘buy’ to ‘add’ and placed a target price of 550p on the shares.
Although currency will cause problems for 2014 full year results, forcing Numis to shave £0.5 million off estimated profits before tax, Pick said the company will benefit ‘materially’ in 2015 from extra Tesco business in the UK and a joint venture with Woolworths in Australia.
‘Markets in Europe remain challenging – muted consumer spending and high meat prices – but this should not surprise. 78% of sales are made outside the UK so there is also a warning note on foreign exchange, largely for the Australian dollar and Swedish Krona,’ said Pick. ‘However, fundamentally this remains a very sound situation.’
Daily Mail receives online boon and has decisions to make
Liberum has reiterated its ‘buy’ recommendation for Daily Mail General Trust (DMGT.L) following a five-month trading update.
Analysts Lisa Hau and Ian Whitakker placed a target price of £11.55 on the shares as group revenue increased 6%, in line with the first quarter and business-to-business publishing showed consistent 10% growth.
They noted that digital revenue had ‘again offset the decline in print advertising – with newspapers down 3% and websites up 52%’.
There are also new products in the pipeline and the publishing group still has decisions to make about its 52.5% stake in property search website Zoopla, which Hau and Whitakker said could provide returns for shareholders.
‘We maintain our full-year 2014 earnings per share: 56.6p (versus consensus 53.5p),’ they said. ‘DMGT are exploring options for its 52.5% stake in Zoopla which we value at £575 million which could lead to cash returns. Also its 38.7% stake in regional newspapers group Local World which we value conservatively at £90 million.’
Babcock announces rights issue on back of acquisition
Engineering support services company Babcock International (BAB.L) has announced the acquisition of aerial services business Avincis Group and a £1.1 billion rights issue.
Shore Capital analyst Robin Speakman said while the Avincis acquisition was ‘significant’ he maintained a ‘hold’ recommendation.
‘The company has announced the acquisition of specialist helicopter and fixed wing services group Avincis for £920 million in cash plus the assumption of £705 million of net debt attaching to the business (so £1.6 billion in total),’ said Speakman.
‘This is to be funded by internal cash resources from Babcock and a fully underwritten rights issue to raise £1.1 billion in new equity. This acquisition takes Babcock further into civil sectors, particularly into oil and gas support, but clearly brings synergies with existing operations including with military servicing.’
The buy will be ‘earnings enhancing’ in the first year according to management as Avincis brings an order book of around £1.9 billion and annual revenue of approximately £485 million.
‘We have been waiting for a significant acquisition from Babcock, “hold” for the present,’ said Speakman.
Marshalls to cash in on UK construction upturn
Marshalls (MSLH.L), home improvement and landscaping market supplier, is an ‘attractive UK recovery play’ as the construction industry picks up, according to Peel Hunt.
Analyst Clyde Lewis retained a ‘buy’ recommendation and increased the target price from 180p to 190p as Marshalls finished 2013 with revenue up 2% at £307 million.
‘The outlook for the sector remains positive and the group has reported a strong start to 2014. We continue to believe the business is one of the most operationally geared companies in the UK market, and that it will be a major beneficiary of growing construction volumes along with rising prices,’ said Lewis.
Trading in 2014 has started strongly, with 18% growth in sales in January, February and early March against ‘very easy – weather-hit – comparisons from last year’. The group is now focused on increasing output to meet demand and ‘bolstering the strong brand with other new products and services, as well as developing new strategic growth initiatives’.