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The Expert View: Halfords, 3i and DS Smith
Our daily round-up of analyst recommendations and commentary, featuring Carillion, Halfords, 3i and DS Smith.
by Chris Marshall on Oct 05, 2012 at 05:01
Cycling success raises Halfords’ fortunes
A sales boost inspired by British gold at the Olympics and victory at the Tour de France earned Halfords top place on the FTSE 250 leaderboard on Thursday as several analysts raised their expectations for the shares.
Peel Hunt upped Halfords to hold from sell, while analysts at both Seymour Pierce and Panmure Gordon raised their target prices for the stock from 300p to 340p and 220p to 300p respectively.
The company reported 4.6% growth in like for like retail sales in the second quarter, after a decline of 7.5% in the previous three months. Today also marks the first day as chief executive for Matt Davies.
‘We are increasing our target price from 220p to 300p to reflect the better P&L performance, our greater inclination to accept management guidance for H2 and the appointment of a high pedigree Chief Executive,’ noted Panmure, while maintaining a hold rating on the shares.
‘The better than- expected Q2 update this morning confirms our belief that profits have now bottomed and while there is much for the new CEO to do, we believe forecast risk has now shifted to the upside,’ commented Seymour Pierce, reiterating a buy rating on the shares.
Shares finished Thursday up 14% to 303p.
Sell Carillion, say Liberum
A management statement from Carillion – in which the construction company said it was on track for improving profits this year – failed to quash concerns held by analysts at Liberum Capital, who mark the shares a ‘sell’.
Joe Brent and William Shirley write in a note that they are concerned by ‘trading, weak cash generation and the Eaga acquisition,’ with reference to the energy firm that Carillion bought last year in a deal that some analysts considered as too expensive.
‘[We] re-iterate our view that the UK contruction margin in excess of 4% is thoroughly unsustainable’, the Liberum team said.
Not all investors agreed with that downbeat view. Oriel Securities say the shares are a buy after the in-line trading update. The shares ended 2.9% higher at 285p on Thursday
Private equity company 3i downgraded to ‘hold’
Expectations of another subdued three months on financial markets underlie a downbeat outlook on private equity company 3i from analysts at Societe Generale who have reduced the company’s rating from ‘buy’ to ‘hold’.
Analysts Bill Barnard and Michael Sanderson cut their full year net asset value (NAV) forecast which they said is being eroded by ‘items such as operating expenses, net interest expense FX and the pension scheme’. Their lower NAV forecast triggered a drop in their target price from 270p to 243p.
‘With interim results scheduled for 15 November, we expect the accent to be on the development and execution of the new strategy designed to ‘right size’ the business, to improve its investment performance, to reduce gross debt and to enhance shareholder returns.'
Any further deterioration in the eurozone crisis could ‘lead us to even more cautious assumptions vis-à-vis ernings growth, impairments and provisions,’ they said.
3i shares fell by 0.5% to 221p on Thursday.
DS Smith’s 100 day acquisition test
One hundred days after its 'transformational' £1.3 billion bid for Swedish rival SCA Packaging, DS Smith is set to deliver an update that will ‘at the very least, bolster confidence,’ according to Oriel Securities.
They continue: ‘But more likely to be able to update and move up targets for deliverables from the integration. With our target price now in sight, such is needed to allow a re-appraisal of upside.’
Oriel have a ‘buy’ recommendation on the stock, with a target price of 207p.
‘The strong share price performance of SMDS over recent weeks reflects the market’s confidence in the group’s success in integrating the acquisition and undoubtedly there is some expectation of upside to estimates from additional synergies,’ they add.
Shares in DS Smith ended Thursday trade at 190p, a rise of 1.8%