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The Expert View: WPP, Next and Smiths News
by Michelle McGagh on Mar 18, 2014 at 05:01
Our daily roundup of the best analyst commentary on shares, also including Innovation Group and SThree.
WPP a strong media play but questions have been raised
Liberum analyst Ian Whittaker is taking a ‘wait and see’ approach to advertising and branding agency WPP (WPP.L) and reiterated his ‘hold’ recommendation.
Whittaker also lowered the target price for the stock to £12.80 form £16.00 over downgrading of improvement guidance form 50bps to 30bps per annum.
‘We recommend investors take a ‘wait and see’ approach to WPP,’ he said. ‘It is still the best positioned of the agencies, in our view, and the agency model still has a number of attractions: but the recent downgrading of annual margin improvement guidance has raised questions that were not there before.’
He also downgraded 2014 and 2015 earnings per share estimates by 8.8% and 7% ‘to reflect a combination of lower 2014 organic revenue growth, lower margin growth and FX effects’.
Buy cheap Next as it builds on ‘strong foundations’
A new designer brand from high street stalwart Next (NXT.L) plus plans for online growth have led Jefferies analysts to reiterate their ‘buy’ recommendation.
Analyst Caroline Gulliver also increased her target price from £70.00 to £75.00 as she expects Thursday’s full year results to ‘once again illustrate the quality of the business model’ and the upside of new initiatives such as ‘Label’.
Gulliver forecast profit before tax of £700 million, at the top end of the consensus, as the brand continues ‘building on strong foundations’.
From a more macro perspective, Gulliver said UK consumer confidence had continued to improve and personal disposable income is expected to grow nearly 2% in 2014 and 2015.
‘Mortgage approvals grew 42% in January which should be a precursor to Next homewares performing well,’ she added.
‘Next’s stock price has risen 21% year to date but in a rising market Next is one of the lowest valued European general retailers.’
Innovation Group acquisitions to kick-start next phase of growth
Business outsourcing company Innovation Group (TIG.L) is set to continue its success story as two acquisitions deliver more growth.
Investec analyst Julian Yates retained a ‘buy’ recommendation but increased the target price for the share from 42p to 45p.
‘Innovation Group has made for a successful story over recent years – recovery followed by operational consolidation, organic growth and then earnings momentum,’ he said. ‘Now marks the right time for its two recent acquisitions, which move the group up another gear in terms of addressable market, scale and critical mass.’
Yates said the acquisitions send ‘a strong signal about the group’s growth ambitions’ and he foresees ‘plenty of organic growth, operational leverage and M&A potential’.
Recruiter SThree at the start of a staffing recovery
Specialist recruitment company SThree (STHR.L) has had an encouraging start to the year as it steps into a staffing recovery.
According to Numis analyst Steve Woolf, who retained a ‘buy’ recommendation and a target price of 534p on the shares, while Q1 results are the ‘least significant’ of the year, he is positive about the outlook for the company.
‘Q1 trading indicates an encouraging start to the year, with improving trends in both temp and perm, and providing management with the confidence to indicate a steady investment in headcount over the remainder of the year,’ said Woolf. ‘We believe that we are in the early phase of staffing recovery, and there is significant earnings upside as we move through the cycle.’
He added that SThree could achieve ‘earnings per share of c.48-54p at the peak of the next cycle’.
Smith News rebrand reflects bigger ambitions
Peel Hunt analyst Kate Renn has retained a ‘hold’ recommendation for newsagent Smith News (NWS.L) as it changes its name to reflect the importance of moving away from life as a newspaper distributor.
Renn increased the target price from 470p to 480p as the name change reflects an aim to diversify the business and a plan to deliver 50% of operating profit from outside news. She added that to deliver its 50% target it needs further acquisition.
The name will change from Smith News to Connect Group from 22 April to ‘reflect its strategy of becoming a more broadly diversified specialist distribution business’,’ said Renn.
Companies within the group will not change their name or identity although they will be split into three divisions, instead of the current four, as the smallest Media Direct will be incorporated into the News and Media Business.