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The Expert View: Winkworth, Carnival and WPP
by Harry Brooks on Sep 26, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Go-Ahead Group and The Restaurant Group.
Our daily round-up of analyst recommendations and commentary, featuring Winkworth, Carnival, WPP, Go-Ahead Group and The Restaurant Group.
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Liberum lifts Winkworth's target price
London's bouyant property market is creating ideal conditions for estate agents such as Winkworth (WINK.L) and Liberum Capital has lifted its target price on the group after a very strong trading update.
Yesterday's first-half results showed revenues up 9% and pre-tax profits up 41%. London sales accounted for 84% of sales in the period, and analyst Jack O'Brien noted that just five busy offices in the capital accounted for 22% of the total.
'House buyers are returning in their largest number for four years according to Rics,' the analyst said. 'London house prices are up 9.7% year on year to July [ONS] whilst gross mortgage lending is up 29%.'
The shares have doubled since the 2012 results, O'Brien noted, but they've since pulled back a bit, presenting a good entry opportunity. The analyst's target price rises from 160p to 200p and he reiterated his 'buy' recommendation.
Shares in the group closed at 180p on Wednesday, up 15p or 9.1%.
Analysts cut Carnival
Shares in cruise line operator Carnival (CCL.L) have taken a battering in the past two days amid a barrage of analyst downgrades following a 30% decline in third-quarter profits and a warning of a possible loss for the current quarter.
Carnival's president and CEO Arnold Donald said geopolitical events in the eastern Mediterranean region were partly to blame for the weak trading figures.
UBS analyst Robin Farley stuck with his 'neutral' recommendation on the shares, but cut his target price from £24 to £22. 'Expenses growth to continue due to need for more marketing and ship improvements. FY’13 yield guidance now at bottom of range,' he said.
Morgan Stanley downgraded the shares to 'underweight' on the back of the update, and Nomura said Carnival ‘will be dead money for six months’.
Shares in the group closed at £21.06 on Wednesday, down 152p or 6.7%.
WPP's a 'buy', Deutsche Bank says
Advertising and public relations company WPP Group (WPP.L) remains a 'buy' for Deutsche Bank, with the analysts impressed by its focus on digital operations and emerging markets.
At the recent investor meeting CEO Sir Martin Sorrell said August organic revenue growth 'was not as strong as July' but 'stronger than the average'. 'From this we infer that like for like growth was comfortably ahead of the year-to-date figure of 2.8%, albeit below 5% reported in July,' analyst Patrick Kirby said, adding that the group looks on track to beat its full-year guidance.
There has been some M&A activity in the sector recently, and Sorrell said consensus projections are typically incorporating 100 basis points of additional annual revenue growth as a result. WPP's response to the mergers is to 'escalate and accelerate' its own strategy, Sorrell said.
'This includes upping its focus on digital and faster growth geographies (40-45% of revenue in five years), and remaining focused on bolton M&A,' the Deutsche Bank analyst said.
Shares in the group closed at £12.85 on Wednesday, down 7p or 0.5%.
Shore Capital upgrades Go-Ahead Group to 'buy'
The market is being too pessimistic about Go-Ahead Group (GOG.L)'s ambitious plans to ramp up its profits, according to Shore Capital, and it's upgraded the bus and rail operator from 'hold' to 'buy'.
'Go-Ahead’s target to reach £100 million operating profit from bus through organic growth by 2016, on the face of it, appears ambitious,' analyst Martin Brown acknowledged.
In order to achieve this growth the company plans to grow bus operating profits by 40% over four years. 'We have considered the implied movements in revenues and costs that will be required to meet the target and believe it is achievable,' Brown said.
What's more, with rail profits negligible at the moment, investors have the chance to gain a 'close to free' option on profitable rail franchise extensions and successful future franchise wins, he added.
Shares in the group closed at £16.52 on Wednesday, down 18p or 1.1%.
Peel Hunt upgrades The Restaurant Group
Peel Hunt has upgraded The Restaurant Group (RTN.L) from 'hold' to 'buy' on the back of improving business visibility and stong returns.
'The bullish comments made by management at the recent interim results regarding the future site pipeline suggest to us that there could be considerable upside from 2014 and beyond,' analyst Nick Batram said.
It's possible that the group could open more than 40 new outfits this year, Batram said, a level not seen for seven years. The positive reception to the group's 'Coast to Coast' operation, an American-themed restaurant and bar chain, gives the company another avenue for expansion, he added.
The shares look fully valued on enterprise value and price-to-earnings metrics, the analyst said, but the strong investment returns and cash flow mean it's now time to switch to a discounted cashflow model.
'This gives us a fair value of 648p (was 483p) per share,' he said. 'We move to Buy.'
Shares in the group closed at 537p on Wednesday, down 6.5p or 1.2%.