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The Expert View: Aviva, Rentokil and EMIS Group
Our daily round-up of analyst recommendations and commentary, featuring Standard Chartered and Bunzl.
by Harry Brooks on Jun 28, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Aviva, Rentokil, EMIS Group, Standard Chartered and Bunzl.
We're still having technical problems with charts, but hope to have them working again tomorrow.
Jeffries downgrades Aviva
James Shuck, analyst at Jeffries, has downgraded multinational insurance business Aviva (AV.L) from 'buy' to 'hold' on concerns that the company is going to struggle to increase its capital level to match its risk profile.
The analyst estimates Aviva's economic capital adequacy to be 135% currently, down from 145-150% last quarter. 'Given the level of volatility in the business, we think that an economic capital ratio of around 170% is more appropriate. Plugging this gap would require £3.2 billion of additional equity capital although we think an equity issue unlikely,' he said. 'Aviva now screens as the weakest capitalised of the European insurers but also with the most volatility.'
An investor day on 5 July should see the new interim chief executive lay out his plans, but Shuck warned that boosting capital won't be easy: 'We have previously argued that disposals could be the catalyst to reverse underperformance but the current environment makes this very difficult.'
Shares in the group, for which Shuck has a target price of £2.81, down from £3.86 previously, closed at 264.89p on Wednesday, up 3.19p or 1.22%.
Deutsche Bank cuts target price for Rentokil
Tom Sykes, analyst at Deutsche Bank, has cut his target price for business services group Rentokil (RTO.L), believing that despite its low valuation better growth figures are needed before the shares can make gains.
The analyst noted that much commentary remains focused on the group's struggling courier business City Link, but most forecasts now expect the division to be more or less breaking even by the end of next year, meaning the wider business needs to show growth to galvanise the shares.
'We believe that the non-City Link businesses are more important to the share price and whilst organically these grew EBITA [earnings before interest, tax and amortisation expenses] by about 4% in Q1, this will need to accelerate to see a re-rating in our view,' he said.
Shares in the group, for which Sykes has a target price of 76p, down from 98p previously, closed at 71.39p on Wednesday, down 0.31p or 0.44%.
Canaccord downgrades EMIS Group as shares surge
Jonathan Imlah, analyst at Canaccord, has downgraded software designer EMIS Group (EMISG.L) from 'buy' to 'hold' following a surge in the shares.
EMIS specialises in software for use in the healthcare industry, and Imlah noted that its electronic patient records products have aligned well with the Department for Health's objectives recently.
'We continue to believe that EMIS is the best-placed supplier to fulfil the role of de facto standard-bearer for an integrated, accessible and reliable healthcare information system in the UK,' he said.
The company's leading position in the space justifies its premium valuation, Imlah said, with it now trading at almost 19x estimated 2013 earnings. The analyst's target price rises from 619p to 631p.
Shares in the group closed at 610.00p on Wednesday, down 22.50p or 3.56%.
Oriel says 'buy' Standard Chartered
Mike Trippitt, analyst at Oriel Securities, has reiterated his 'buy' recommendation on financial services company Standard Chartered (STAN.L) following a pre-close statement that suggests the year has got off to a good start.
The statement said that income for the first six months of 2012 is expected to grow at a high single-digit rate over the comparable period last year, in line with the May interim management statement guidance.
Margins are also expected to widen, which Trippitt questioned given that policy rates aregenerally being reduced. Nonetheless, the analyst retains his high-conviction 'buy' stance on the shares, with a target price of £19.
Shares in the group closed at £13.43 on Wednesday, up 9.48p or 0.71%.
Seymour Pierce reiterates 'hold' stance on Bunzl
Kevin Lapwood, analyst at Seymour Pierce, has reiterated his 'hold' recommendation on outsourcing group Bunzl (BNZL.L) following the publication of a pre-close statement that suggests trading is in line with expectations.
Revenue growth in the six months ending 30 June is expected to have been 7% in constant currency terms, with underlying growth coming in at 4%.
Although the brief statement didn't elaborate on how the company is performing in its various global markets, Lapwood expects the theme of good demand in the US and a weaker picture in Europe to continue.
Following a good performance in recent months, Lapwood said the shares are looking fully valued. 'The shares have had a strong run, up 15% relative to FTSE All share this year. In our view, Bunzl is a quality company with an attractive business model. However, we believe this is now more than fully reflected in its price,' he said.
Shares in the group, for which Lapwood has a target price of £10, closed at £12.20 on Wednesday, up 0.56p or 0.05%.
More about this:
Look up the shares
- Bunzl PLC (BNZL.L)
- Rentokil Initial PLC (RTO.L)
- Standard Chartered PLC (STAN.L)
- Aviva PLC (AV.L)
- EMIS Group PLC (EMISG.L)