The Expert View: Diageo, WH Smith and Petropavlovsk

We’ve chosen some of the best comment from analysts to give you their views on Diageo, WH Smith, Petropavlovsk, Falkland Oil and Gas, and Costain.

Key stats
Market capitalisation	£42,485m
No. of shares out	2,506m
No. of shares floating	2,236m
No. of common shareholders	not stated
No. of employees	23786
Trading volume (10 day avg.)	3m
Turnover	£9,936m
Profit before tax	£1,900m
Earnings per share	75.97p
Cashflow per share	92.08p
Cash per share	63.26p

*Correct as at 23 Aug 2012

Oriel increases target price for Diageo

Chris Wickham, analyst at Oriel Securities, has increased his target price for drinks maker Diageo (DGE.L) following full-year results that came in ahead of expectations.

In the year ended 30 June revenues hit £10.8 billion, compared with consensus expectations of £10.7 billion and Wickham's £10.6 billion forecast. Operating profits were up 9%, with a strong emerging markets performance offsetting weak sales in Europe.

The company is increasing its dividend 8% to 43.5p per share.

'In our view, Diageo justifies a premium valuation to the UK fast-moving consumer goods sector average,' Wickham said. 'Currently, it trades on a 17.2x calendar 2012 price to earnings, compared with 16.2x for the UK big-six consumer goods companies.

'Diageo’s P/E based on our forecasts drops to 15.2x in calendar 2013, which is too low. Our revised £19.50 price target – which refers to end-March 2013 – is equivalent to a calendar 2013 P/E of 18x. BUY.'

Shares in the group closed at £16.98 on Thursday, up 17.5p or 1.04%.

Key stats
Market capitalisation	£800m
No. of shares out	131m
No. of shares floating	123m
No. of common shareholders	not stated
No. of employees	16273
Trading volume (10 day avg.)	0m
Turnover	£1,273m
Profit before tax	£73m
Earnings per share	51.41p
Cashflow per share	76.76p
Cash per share	29.50p

*Correct as at 23 Aug 2012

Peel Hunt raises target price for WH Smith

John Stevenson, analyst at Peel Hunt, has increased his target price for WH Smith (SMWH.L) on news that full-year trading looks set to come in at the top end of expectations, aided by bumper sales of sado-masochistic bonkbuster 50 Shades of Grey.

In its pre-close trading update the group said both its travel outlets (located in airports and train stations) and high-street operations have put in a strong performance.

According to the British Retail Consortium year-on-year book sales rose in August for the first time since January 2011, no doubt helped along by the 50 Shades phenomenon, the analyst added.

Stevenson praised the group's strong cash generation and attractive 4.3% dividend yield, and said the the impact of technology on both arms of its business remains the only concern. He retains a 'hold' recommendation on the shares.

Shares in the group, for which Stevenson has a target price of 600p, up from 525p previously, closed at 599.05p on Thursday, up 17.05p or 2.93%.

Key stats
Market capitalisation	£766m
No. of shares out	187m
No. of shares floating	158m
No. of common shareholders	not stated
No. of employees	13385
Trading volume (10 day avg.)	1m
Turnover	800m USD
Profit before tax	146m USD
Earnings per share	0.78 USD
Cashflow per share	1.20 USD
Cash per share	0.73 USD

*Correct as at 23 Aug 2012

Canaccord reiterates 'buy' on Petropavlovsk

Peter Mallin-Jones, analyst at Canaccord, has reiterated his 'buy' recommendation on Russia-focused mining company Petropavlovsk (POG.L) in spite of a disappointing trading update.

In the six months to 30 June net profit came in at $11 million, down a painful 90% from $108.2 million in the same period a year ago. The shares dropped almost 12% yesterday morning in the wake of the news.

Peter Hambro, Petropavlovsk's chairman, said 'This headline disappointment should be viewed against the background that it was caused mainly by non-cash items such as a US$60.8 million increase in depreciation charges and foreign exchange translation losses of US$3.4 million.'

One of the group’s major expenses has been its pressure oxidation plant (POX) plant, which has created investor uncertainty.

Mallin-Jones, however, said the project should lift the share price as progress continues. 'At present the shares are pricing in a 54% chance that its POX related investments do not result in a single ounce of gold being produced. Over the coming reporting periods, as management rebuilds investor confidence in it, we believe that discount is likely to close.'

Shares in the group closed at 396p on Thursday, down 72.9p or 15.55%.

Key stats
Market capitalisation	£284m
No. of shares out	320m
No. of shares floating	301m
No. of common shareholders	not stated
No. of employees	7
Trading volume (10 day avg.)	2m
Turnover	0m USD
Profit before tax	-4m USD
Earnings per share	-0.02 USD
Cashflow per share	-0.02 USD
Cash per share	0.16 USD

*Correct as at 23 Aug 2012

Merchant Securities says 'buy' Falkland Oil and Gas

Brendan Long, analyst at Merchant Securities, has reiterated his 'buy' recommendation on Falkland Oil & Gas (FOGL.L) following interim results that matched his expectations.

In the six months ended 30 June Falkland's pre-tax loss hit $200,000, a big improvement from the same period a year ago when it lost $3.6 million.

'We may modestly adjust our target price after discussing the balance sheet details with management; however, we believe that our 338.5p target price is unlikely to change by very much and we are therefore comfortable maintaining this target price for now,' Long said.

The next big thing for investors in the company will be the results from the giant Loligo prospect, located approximately 200km east of the Falkland Islands. The well was begun on 3 August and is expected to take two months to complete.

Shares in the group closed at 95.25p on Thursday, up 7.5p or 8.55%.

Key stats
Market capitalisation	£143m
No. of shares out	65m
No. of shares floating	37m
No. of common shareholders	not stated
No. of employees	4159
Trading volume (10 day avg.)	0m
Turnover	£869m
Profit before tax	£19m
Earnings per share	28.21p
Cashflow per share	32.43p
Cash per share	218.99p

*Correct as at 23 Aug 2012

Investec backs Costain Group

Andrew Gibb, analyst at Investec, has reiterated his 'buy' recommendation on engineering and construction company Costain Group (COST.L) following the publication of a strong set of first-half results.

Revenues over the past six months hit £477.9 million, up from £468.5 million in the same period a year ago, and reported pre-tax profit rose from £10.1 million to £15.4 million. The interim dividend has been increased 8% to 3.5p.

Gibb was positive on the group's outlook, noting that the orderbook is worth £2.4 billion, 90% of which is repeat orders.

'The valuation is undemanding, standing on an estimated 2012 price-to-earnings ratio of 7.1x and a dividend yield of about 5%,' he said. 'A growing Support Services offering should also help returns and we therefore reiterate our BUY and 315p sum of the parts-based price target.'

Shares in the group closed at 225p on Thursday, up 5p or 2.27%.