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The Expert View: Whitbread, Lloyds and WS Atkins
by Harry Brooks on Mar 13, 2013 at 05:01
A roundup of some of the best analyst commentary on shares, also including Imagination Technologies and Rightmove.
Our daily round-up of analyst recommendations and commentary, featuring Whitbread, Lloyds, WS Atkins, Imagination Technologies and Rightmove.
Whitbread: the EasyJet of the hotel world?
Whitbread (WTB.L)'s Premier Inn operation makes it the EasyJet of the hotel world, according to UBS analyst Jarrod Castle, who has upgraded the group to 'buy' in anticipation of more growth to come.
The comparison shouldn't come as too much of a surprise, Castle noted, as Whitbread CEO Andy Harrison was previously CEO of the no-frills airline.
'Premier Inn has nearly tripled its number of rooms over the past nine years, and we believe that Costa Coffee has tripled the number of stores in six years, with both businesses seeing growth during the 2008-09 downturn,' Castle said.
Although he expects growth in the coffee chain to slow, the analyst said Whitbread's strategy of locating the restaurants in or near Premier Inn hotels is a savvy move that lowers the risk level.
'We still see double-digit Costa Coffee store growth for the next three years and expect high-single-digit room growth at Premier Inn,' he added.
Shares in the group closed at £26.23 on Tuesday, up 39p or 1.5%.
Investec upgrades Lloyds on share price weakness
The dip in Lloyds (LLOY.L) shares following the publication of its full-year results two weeks ago has prompted Investec analyst Ian Gordon to bump up his recommendation from 'sell' to 'hold'.
The shares have lost about 10% since the results, and together with small forecast revisions this was enough to change Gordon's take on the shares.
'We still advise relative caution on Lloyds, but we now recommend the closure of naked shorts,' he said. On the PPI mis-selling issue he said he expects the cumulative bill to hit £7 billion in 2013. 'On Libor, management courageously suggests that the main focus of regulatory scrutiny lies elsewhere... at least for now!' he added.
Gordon's target price rises from 46p to 50p.
Shares in the group closed at 50.7p on Tuesday, up 0.7p or 1.5%.
Canaccord lifts target price for WS Atkins
Canaccord analyst Graham Brown has increased his target price for engineering and design business WS Atkins (ATK.L) to take into account its disposal of its UK transport business.
WS Atkins is going to sell the division for £18 million, releasing capital that can be re-invested through acquisitions. Brown said the decision is a good move, as it'll reduce the company's exposure to a low-margin, low-growth sector.
'In tough market conditions in recent years Atkins management has delivered respectable margins (average 7.3% 2010-12), but well down from their peak,' Brown said.
'The business is downsized and lean, but is now back in hiring mode. As a result we expect favourable utilisation rates and therefore strengthening margins.'
The analyst reiterated his 'buy' recommendation on the shares, and raised his target price 19% to £11.
Shares in the group closed at 911p on Tuesday, up 14.5p or 1.6%.
Imagination wins Samsung graphics contract
Chipmaker Imagination Technologies (IMG.L) gave its investors some good news yesterday when it announced that the world’s leading consumer electronics manufacturer, Samsung, is once again using its graphics chips.
Finncap analyst Lorne Daniel said Samsung's decision to use Imagination rather than rival chip designer ARM was a 'huge fillip' for the group. More generally, Daniel said the results suggested momentum is continuing in the third quarter, with royalty revenue growth remaining strong.
'The share price has enjoyed a strong recovery from December lows, but with a price to earnings ratio in excess of 50x looks fairly valued at present,' the analyst said, reiterating a 'hold' recommendation on the shares.
'Royalty revenues continue to show growth but some uncertainty remains: over where Samsung will use Exynos 5 Octa, over closure of Licence sales, the recovery of the Pure digital radio business and the future direction of the processor business with MIPS. Enough uncertainty to put a brake on the PErating.'
Shares in the group closed at 537p on Tuesday, up 7p or 1.3%.
Take profits from Rightmove, Westhouse urges
Investors in Rightmove (RMV.L), the property-hunting site, should take profits following the surge in the shares after the strong prelimary results, according to Westhouse analyst Roddy Davidson.
This month’s prelims detailed another strong performance from the group, with revenue and adjusted pre-tax profits ahead by 23% and 33% year-on-year respectively. On the back of this Davidson has increased his 2013 pre-tax profit forecast by 11%.
However, the resultant £16.77 target price (up from £16.10 before) still suggests 6% downside to current levels, Davidson said. 'As we see little scope for further gains at present, we suggest holders take profits.'
Shares in the group closed at £17.84 on Tuesday, up 8.7p or 0.5%.