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The Expert View: Devro, G4S and Britvic

Our daily round-up of analyst recommendations and commentary, featuring conveyor-belt maker Fenner and homebuilder Barratt Developments.

by Harry Brooks on Jul 13, 2012 at 05:01

We’ve chosen some of the best comment from analysts to give you their views on Devro, G4S, Britvic, Fenner and Barratt Developments.

Key stats
Market capitalisation£514m
No. of shares out165m
No. of shares floating159m
No. of common shareholdersnot stated
No. of employeesnot stated
Trading volume (10 day avg.)0m
Turnover£228m
Profit before tax£34m
Earnings per share20.53p
Cashflow per share28.87p
Cash per share4.61p

*Correct as at 12 Jul 2012

Peel Hunt downgrades Devro

Charles Hall, analyst at Peel Hunt, has downgraded sausage-skin maker Devro (DVO.L) from 'buy' to 'hold' following a rise in the share price since the start of the year and his expectation of unhelpful foreign exchange movements in the year ahead.

The analyst's 2012 pre-tax profit forecast has fallen from £47 million to £43.5 million, bringing it below the consensus figure of £44.7 million. The shares have gained 21% in the year to date, and now sit close to his target figure of 315p.

'£1.5 million of our reduction is due to the movement in exchange rates (largely euro and Czech crown). Interest charges will be £0.5 million higher than we expected, because of phasing of capex and higher rates. The remaining £1.5m is due to mix (higher sales in Latin America) and some higher costs (such as hides, energy),' Hall explained.

Devro features in Citywire Top Stocks®, where it is held by Derek Stuart in his Artemis UK Special Situations fund.

Shares in the group closed at 309.50p on Thursday, down 5.20p or 1.65%.

Key stats
Market capitalisation£3,996m
No. of shares out1,404m
No. of shares floating1,384m
No. of common shareholdersnot stated
No. of employees657000
Trading volume (10 day avg.)3m
Turnover£7,522m
Profit before tax£206m
Earnings per share14.66p
Cashflow per share32.60p
Cash per share34.61p

*Correct as at 12 Jul 2012

UBS warns of 'reputational damage' to G4S

Jaime Brandwood, analyst at UBS, has warned that the apparent failure of G4S (G4S.L) to find enough security staff for the Olympics could harm its chances of securing government contracts in the future.

Private security contractor G4S yesterday confirmed that it is struggling to supply the 10,000 guards needed for the games, saying it has 'encountered some delays in progressing applicants through the final stages'. The military has been asked to provide 3,500 extra troops to cover the shortfall.

'For G4S, increasing total UK staff by about 20% on a temporary basis was always going to be a challenge,' Brandwood said. 'The key now, regardless of risk to sales/profits on Olympics work, has to be to avoid reputational damage that could hurt its chances of securing future events work and a fair share of a burgeoning UK govt outsourcing pipeline.'

Brandwood predicted that 'Shares may seem some pressure today on this news', but he retains his 'buy' recommendation nonetheless.

Read more about G4S's Olympic staffing shortfall

Shares in the group closed at 283.40p on Thursday, down 7p or 2.41%.

Key stats
Market capitalisation£613m
No. of shares out242m
No. of shares floating214m
No. of common shareholdersnot stated
No. of employees3532
Trading volume (10 day avg.)2m
Turnover£1,290m
Profit before tax£58m
Earnings per share23.70p
Cashflow per share43.39p
Cash per share19.03p

*Correct as at 12 Jul 2012

JP Morgan lops target price for Britvic on product-recall costs

Matthew Webb, analyst at JP Morgan, has slashed his target price for Britvic (BVIC.L) after the drinks manufacturer said the cost of recalling Robinsons Fruit Shoot and Fruit Shoot Hydro packs would wipe between £15 million and £25 million off profits in the next two years.

The analyst identified two key concerns in the wake of the profit warning and share-price slump. First, he said the news called into question the reliability of forecasts for the 2013 financial year and beyond. Second, Webb said the news makes a cut in the dividend a possibility.

'In our view the answer to the first is “no”, and the answer to the second is therefore “not necessarily”,' he said. However, he acknowledged that the lasting damage to the Fruit Shoot brand is hard to assess at this stage. 'On this basis we find it hard to recommend the shares despite a valuation that looks attractive even on our much-reduced forecasts,' he added.

Shares in the group, for which Webb has a target price of 260p, down from 370p previously, closed at 260.54p on Thursday, up 0.44p or 0.17%.

Key stats
Market capitalisation£717m
No. of shares out194m
No. of shares floating189m
No. of common shareholdersnot stated
No. of employees4548
Trading volume (10 day avg.)1m
Turnover£718m
Profit before tax£47m
Earnings per share24.36p
Cashflow per share39.59p
Cash per share54.11p

*Correct as at 12 Jul 2012

Canaccord says 'buy' Fenner

Michael O'Brien, analyst at Canaccord, has reiterated his 'buy' recommendation on conveyor-belt maker Fenner (FENR.L) following the publication of an encouraging trading update.

According to yesterday's trading update the company has continued to make solid progress during the period, achieving revenue and earnings in line with expectations. One exception was conveyor belts for use in the US coal trade, sales of which suffered as a result of an unusually mild winter and the depressed natural gas price.

'We remain encouraged by the underlying performance of the resource exposed elements of the business and believe that the current rating is failing to take into account either the transformation of the ECS division over recent years and also specific factors which mitigate the Group’s exposure to the resources cycle,' O'brien said, referring to the company's Engineered Conveyor Solutions arm.

Although O'Brien acknowledged that the US shale gas boom presents a challenge, he said increasing open-cast coal mining from the west coast for export would lift demand for conveyor belts in the years ahead.

Shares in the group closed at 344.04p on Thursday, down 30.26p or 8.09%.

Key stats
Market capitalisation£1,309m
No. of shares out966m
No. of shares floating932m
No. of common shareholdersnot stated
No. of employees4000
Trading volume (10 day avg.)5m
Turnover£2,035m
Profit before tax£-14m
Earnings per share-1.44p
Cashflow per share-1.25p
Cash per share7.53p

*Correct as at 12 Jul 2012

Glynis Johnson lifts target price for Barratt Developments

Glynis Johnson, analyst at Deutsche Bank, has increased her target price for homebuilder Barratt Developments (BDEV.L) following the publication of a pre-close trading statement that showed resilient results.

In the year ended 30 June group revenues rose 14% to £2.3 billion, with 12,637 completions. Full-year pre-tax profits were up 158%, hitting £110 million. Johnson said the standout feature of the statement was net debt, which almost halved, beating expectations.

The analyst has increased her target price from 205p to 207p. 'Trading at 0.6x 2013 net tangible asset value, Barratt is the cheapest stock in the sector. However as the company makes progress in reducing its debt and driving its returns we see significant further re-rating potential. BUY.'

Shares in the group closed at 136.30p on Thursday, up 3.30p or 2.48%.

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  • Fenner PLC (FENR.L)
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  • G4S PLC (GFS.L)
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  • Devro PLC (DVO.L)
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  • Britvic PLC (BVIC.L)
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  • Barratt Developments PLC (BDEV.L)
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