The Expert View: Devro, Pearson and Lloyds

Our daily round-up of analyst recommendations and commentary, featuring Devro, Pearson, Lloyds, Paragon and Bovis Homes.

Key stats
Market capitalisation	£586m
No. of shares out	166m
No. of shares floating	159m
No. of common shareholders	not stated
No. of employees	not stated
Trading volume (10 day avg.)	0m
Turnover	£228m
Profit before tax	£34m
Earnings per share	20.53p
Cashflow per share	28.87p
Cash per share	4.61p

*Correct as at 26 Feb 2013

Shore Capital downgrades Devro

The cost of developing new product lines means shares in sausage-skin maker Devro (DVO.L) will struggle to make gains in the near term, according to Shore Capital analyst Darren Shirley, who has downgraded the group from 'buy' to 'hold'.

Yesterday's full-year results showed revenues up 5.9% year-on-year at £241.1 million, and pre-tax profits up 0.8% to £42.2 million, beating Shirley's forecast of £41.8 million.

A final dividend of 5.85p has been proposed, resulting in a total payment for the year of 8.5p, a 6.3% increase year-on-year.

'We believe much interest will focus on the 80 basis point decline in the earnings before interest and taxes margin to 17.9% (18.2% in constant currency), as the group was adversely impacted by rising hide and energy costs through the middle of the year, and also the continuing phased investment and introduction of new manufacturing lines,' Shirley warned.

'With forecasts again under pressure we see limited scope for stock appreciation in the short term and down grade our recommendation.'

Shares in the group closed at 359p on Tuesday, up 4p or 1%.

Key stats
Market capitalisation	£9,487m
No. of shares out	817m
No. of shares floating	797m
No. of common shareholders	not stated
No. of employees	41521
Trading volume (10 day avg.)	3m
Turnover	£5,059m
Profit before tax	£283m
Earnings per share	35.13p
Cashflow per share	74.85p
Cash per share	130.72p

*Correct as at 26 Feb 2013

Restructuring holds key for Pearson's future, Berenberg Bank says

Publishing group Pearson (PSON.L)'s £150 million restructuring effort holds the seeds of long-term growth, according to Berenberg Bank analyst Sarah Simon, who has a 'hold' recommendation on the shares.

The news that Pearson is to ramp up its restructuring plan came alongside Monday's warnings over difficult advertising markets and lower government spending. Fears that these will hit the publishing and schools businesses saw the shares drop 5.6%.

However, Simon is backing the group. 'While these restructuring costs took the market unawares, ultimately we believe that Pearson is a business with solid structural growth in its long-term future,' she said. 'This is not the case for many of its peers, which are seeing rising pressure on organic growth.'

Shares in the group closed at £11.53 on Tuesday, down 18p or 1.5%.

Key stats
Market capitalisation	£37,568m
No. of shares out	70,424m
No. of shares floating	42,555m
No. of common shareholders	not stated
No. of employees	120449
Trading volume (10 day avg.)	107m
Turnover	£26,316m
Profit before tax	£-2,787m
Earnings per share	-4.07p
Cashflow per share	-0.90p
Cash per share	88.25p

*Correct as at 26 Feb 2013

Societe Generale drops Lloyds from 'Premium List'

Societe Generale analyst Paul Jackson has dropped Lloyds (LLOY.L) from his 'Premium List' of preferred stocks following a strong run for the shares.

The shares are now up more than 50% compared with six months ago, and almost 20% compared with three months ago.

On the prospects for the eurozone, The analyst sounded a hopeful note. 'We remain relatively optimistic on the medium-term prospects for European equities despite the risk of a market correction,' he said. 'The short-term undertainties motivate our effort to mix growth, value and financials within our selection of the best ideas.'

With Lloyds having hit Jackson's target price he has opted to retire it from the list. He has also dropped Swiss Re following Thursday's confirmation of its special dividend payment.

Shares in the group closed at 53p on Tuesday, down 1.7p or 3%.

Key stats
Market capitalisation	£941m
No. of shares out	303m
No. of shares floating	293m
No. of common shareholders	not stated
No. of employees	754
Trading volume (10 day avg.)	0m
Turnover	£306m
Profit before tax	£72m
Earnings per share	23.50p
Cashflow per share	24.51p
Cash per share	167.61p

*Correct as at 26 Feb 2013

Paragon stands to gain from buy-to-let revival

Bank of America Merrill Lynch analyst Michael Helsby has upgraded mortgage and consumer finance business The Paragon Group of Companies (PARA.L) from 'hold' to 'buy', arguing that changes in the buy-to-let market will propel the company.

'We think the basis is changing for Paragon,' Helsby said. 'Paragon’s new business options within the buy-to-let market are increasing dramatically. We would expect this to feed through into more competitive pricing and into volume growth.

'With the prospect of a banking licence now likely in 2013 we think it is likely that Paragon can restart its organic consumer finance growth.' Helsby has a target price for Paragon of 385p.

Shares in the group closed at 310p on Tuesday, up 0.8p or 0.3%.

Key stats
Market capitalisation	£871m
No. of shares out	134m
No. of shares floating	133m
No. of common shareholders	not stated
No. of employees	560
Trading volume (10 day avg.)	0m
Turnover	£365m
Profit before tax	£23m
Earnings per share	17.50p
Cashflow per share	18.06p
Cash per share	42.03p

*Correct as at 26 Feb 2013

Citi downgrades Bovis after strong run

It's time to pause for breath on Bovis Homes Group (BVS.L) following a strong run for the shares, according to Citi Research analyst Aynsley Lammin.

The shares have gained over 42% since July 2012, Lammin noted, with improving margins and volumes cheering the mood. Preliminary results a couple of weeks ago showed pre-tax profits of £54 million, £1 million ahead of the analyst's projection.

'However, given the recent run in the share price which is now closer to our price target of 710p (unchanged) and a valuation of 1.1 times price to net asset value we would not be surprised to see the shares pause in the near term,' Lammin said.

Shares in the group closed at 645.5p on Tuesday, down 14.5p or 2.2%.