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The Expert View: Cove Energy, Capita and Carpetright
Our daily round-up of analyst recommendations and commentary, featuring Rightmove and Associated British Foods.
by Harry Brooks on Apr 25, 2012 at 05:01
We’ve rounded up some of the best comment from analysts to give you their views on Cove Energy, Capita, Carpetright, Rightmove and Associated British Foods.
Investec raises target price for Cove Energy on Shell takeover nod
Stuart Joyner, analyst at Investec, has increased his target price for Mozambique-focused oil and gas explorer Cove Energy (COV.L) after the company's directors recommended that investors accept a £1.12 billion takeover bid from Royal Dutch Shell (RDSb.L).
Shell offered the same level of cash that Thai state-controlled oil firm PTT Exploration and Production (PTTEP) had mooted back in February, but its expertise seems to have won the directors' approval. PTTEP said on Tuesday that it is 'currently considering its options'.
Joyner said the shares are likely to trade at a premium for the time being amid hopes of a counter offer from PTTEP. Shell's offer values the shares at 220p, comfortably ahead of the analyst's fair value reading of 195p, and he has raised his target price to meet Shell's offer.
Shares in the group closed at 224.50p on Tuesday, up 8.34p or 3.84%
More updates from Investec:
- Carrs Milling (CRM.L), 'buy' (unchanged), target price: under review (was 920p)
Espirito Santo negative on Capita's cash-raising plan
David Brockton, analyst at Espirito Santo, has reiterated his 'sell' recommendation on UK outsourcing giant Capita (CPI.L) on news that the company is to raise more equity to fund further acquisitions.
Capita will issue around 40 million new shares, representing some 6.5% of its existing share capital, to help it acquire a growing number of potential targets. 'We are seeing a greater number of acquisition opportunities which could add further value,' the statement said.
The news came alongside the group's first-quarter results, which revealed a 17% rise in sales over the three months ending 31 March. The company's statement said this rise in sales was largely the result of acquisitions undertaken during 2011. The group won some £900 million of new contracts in the first 16 weeks of the year, compared with £2 billion for the whole of 2011.
Nonetheless, for Brockton the results only underlined a growing reliance on acquisitions to maintain growth: 'Today’s newsflow reinforces our negative stance on Capita, with the group’s reliance on acquisitions increasing and organic growth seemingly becoming more working capital consumptive, against a backdrop of a stretched balance sheet.'
Shares in the group closed at 684.50p on Tuesday, down 44.50p or 6.10%.
Oriel cuts forecasts for Carpetright on profit warning
Alistair Davies, analyst at Oriel Securities, has reiterated his 'sell' recommendation on floor-coverings retailer Carpetright (CPR.L) following a profit warning.
As a result of weaker trading in the quarter the group now expects a full-year pre-tax profit of £3-4 million, a substantial downgrade from consensus expectations of around £6 million. This figure itself represented a downgrade following a warning in January that no respite was expected over the coming year.
In the 11 weeks ended 14 April group sales fell 4.2% year-on-year, and UK sales fell 3.2%. Davies did note that there were 'some green shoots of recovery in the UK', where like-for-like sales, which exclude sales from stores that closed over the year, rose 1.4%.
European operations, however, remain a drag. In local currency terms sales fell 4.7% year-on-year, but allowing for changes in the exchange rate this translates into an 8% decline. Bed sales in the UK were also disappointing, despite the introduction of a new range at the start of the year.
Following the update Davies has lowered his 2012 pre-tax profit forecast from £4.7 million to £3.2 million. Over at Panmure Gordon Philip Dorgan also took the opportunity to reiterate his 'sell' recommendation.
Shares in the group closed at 588.92p on Tuesday, down 18.08p or 2.98%.
Peel Hunt downgrades Rightmove as shares surge
Malcolm Morgan, analyst at Peel Hunt, has downgraded property-search website operator Rightmove (RMV.L) from 'hold' to 'sell' following a surge in the share price over the past few months.
'Rightmove’s capacity to increase prices is not underpinned by the longevity that comes from intellectual property, but reflects its success in using the common technology of the internet to disrupt the former dominant business model,' he said.
The analyst said that at their current price the shares are trading on a forecast 2013 enterprise value to earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) ratio of 17.9x, compared with 5x for the FTSE All Shares and 6.3x for the media sector.
'Whilst we agree that a premium is merited for the current strength of the market position ultimately we remain concerned that the scale and financial health of the markets served, and the potential for competitive pressure, will act as a drag on the company’s capacity to drive a decade of double-digit revenue growth,' the analyst concluded.
Shares in the group closed at £15.07 on Tuesday, up 15p or 1.01%.
More updates from Peel Hunt:
- Vectura (VEC.L), 'buy' (unchanged), target price: 132p (was 130p)
Canaccord says 'buy' Associated British Foods
Alicia Forry, analyst at Canaccord, has reiterated her 'buy' recommendation on multinational food and ingredients business Associated British Foods (ABF.L) following the publication of first-half results that were in line with expectations.
In the 24 weeks ended 3 March group revenues rose 11% year-on-year to £5.76 billion, and adjusted pre-tax profit rose 3% to £363 million.
Forry noted that operating margins in the retail division have declined less than she had feared, and she added that falling cotton prices are already having a positive impact on the group's cost base.
'The tone of the statement and the outlook commentary is upbeat and we expect a positive reaction in the shares today,' the analyst added.
ABF is one of Canaccord's 'top picks' within the consumer staples sector, and Forry said that easing costs; firm pricing; and strengthening volumes in sugar, ingredients and groceries should all support earnings in the medium term.
Shares in the group, for which Forry has a target price of £14, closed at £12.32 on Tuesday, up 17p or 1.4%.
More about this:
Look up the shares
- Associated British Foods PLC (ABF.L)
- Carpetright PLC (CATVU.L)
- Cove Energy PLC (COVE.L)
- Rightmove PLC (RMV.L)
- Capita PLC (CPI.L)