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The Expert View: Morrisons, SSE and Cape
Our daily round-up of analyst recommendations and commentary, featuring Restaurant Group and EMIS Group.
by Harry Brooks on Sep 03, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Morrisons, SSE, Cape, Restaurant Group and EMIS Group.
Barclays reduces Morrisons' target price ahead of interim results
James Anstead, analyst at Barclays, has trimmed his target price for supermarket chain Morrisons (MRW.L) ahead of Thursday's interim results announcement.
'Morrisons' forthcoming results may be the company’s most difficult for a number of years, with sales growth having slowed sharply and profits essentially flat,' Anstead warned. 'Recently unveiled initiatives have not had the effect one might have hoped for and the turning point is not immediately obvious.'
He did note, however, that weaker sales trends in the UK may result in the company reducing its expansion plans, which would probably please investors.
Anstead expects an unencouraging set of figures, with sales weak and earnings barely growing, which could have a knock-on effect on the shares, on which he currently has an 'equal weight' stance. Sainsbury's is more attractive based on its better sales trends over the past year, he believes.
Shares in the group, for which Anstead has a target price of 295p, down from 320p previously, closed at 278.9p on Friday, down 2.1p or 0.75%.
UBS upgrades SSE to 'buy'
Stephen Hunt, analyst at UBS, has upgraded electricity and gas utility SSE (SSE.L) from 'neutral' to 'buy', citing an attractive dividend yield and various avenues for growth in the years ahead.
The UK's focus on renewable energy should play to SSE's advantage, Hunt said, given its UK location and well-balanced asset mix. 'SSE’s renewable investment program is about to move from a balance sheet drag to an earnings driver, as around £1 billion in capex (about 8% of market cap) generate first earnings,' he said.
The company's transmission business should also benefit from 'debottlenecking' work between Scotland and England, while the forecast 9% reduction in total UK generation capacity by August 2013 should improve margins.
'We upgrade SSE to Buy with a 1,515p sum of the parts based price target. SSE’s strong 6.4%dividend yield helps to put a floor under the company’s share price, whilst regulated and renewables generation operations deliver structural earnings growth, with a 'free option' for further growth from a recovery in gas generation markets,' he concluded.
Shares in the group closed at £13.69p on Friday, down 10p or 0.73%.
JP Morgan stays at 'overweight' on Cape
James Thompson, analyst at JP Morgan, has reiterated his 'overweight' recommendation on industrial materials business Cape (CIU.L) following a set of first-half figures that were broadly in line with expectations that were significantly lowered following August's profits warning.
Revenues over the past six months of £372 million, up 11% year-on-year, were 2% behind Thompson's forecast, and operating profit of £16.1 million was also 2% behind. Cape shares plummeted more than 40% at the start of August after it warned that operations in the Far East had suffered a sharp deterioration in the second quarter.
Business in the UK and Middle East was strong over the period, Thompson noted. Operations in Australia and the Far East remain a problem, but a review is now under way. 'Given the scale of the apparent liquefied natural gas opportunity in Australia, we remain positive on long-term outlook for this market,' he added.
The analyst said an increasing emphasis on maintenance contracts is positive news: 'The lower risk and more stable nature of maintenance contracts in the sector may be a sensible move near term, particularly given the slippage on timing of awards on many large construction projects.'
Shares in the group closed at 240.5p on Friday, up 10.5p or 4.57%.
Canaccord says 'buy' Restaurant Group
Wayne Brown, analyst at Canaccord, has reiterated his 'buy' recommendation on Garfunkel’s owner Restaurant Group (RTN.L), saying its half-yearly results underline why it should be a core holding.
Like-for-like sales increased 3.25% year-on-year in the first six months of the year, with revenues up 7.5% to £252 million and adjusted pre-tax profits up 7% to £26.1 million.
The statement said the group has opened 12 new sites so far this year and is on target to open 25-30 by the end of the year. Among openings was a second Coast to Coast restaurant in Newcastle. This new venture is an American-themed restaurant that draws inspiration from the journey along the Lincoln Highway.
'The current valuation of 14x 2012E price to earnings falls to 12.6x in 2013E. We feel this rating is more than underpinned by an improving outlook on openings, strong trading and with improving cash returns the cash payback period on new sites has fallen to around two years,' Brown said. He retains his 385p target price.
Shares in the group closed at 329p on Friday, up 7p or 2.17%.
Merchant Securities lifts target price for EMIS Group
Roger Phillips, analyst at Merchant Securities, has increased his target price for healthcare software business EMIS Group (EMIS.L) following interim results that beat his forecasts.
Revenues over the past six months rose 19% year-on-year to £42.3 million, and adjusted operating profits were up 15% at £11.5 million.
'EMIS is being boosted by a number of incremental positives, the latest of which is a frameworkagreement to supply into Wales. With InPractice the only other framework supplier, iSOFT/CSC’sroughly 60 practices are now up for grabs in the region, so market share gain can be expected,' the analyst said.
'We revise our target price to 800p (700p), reflecting 2013 enterprise value/net operating profit after tax of 25x. This is optically expensive, but EMIS is growing high teens already and has potential to accelerate with the bulk of the EMIS Web rollout still to come, which could drive a significant earnings upgrade cycle.'
Shares in the group closed at 722.58p on Friday, up 42.58p or 6.26%.
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Look up the shares
- SSE PLC (SSE.L)
- Cape PLC (CIU.L)
- WM Morrison Supermarkets P L C (MRW.L)
- EMIS Group PLC (EMISG.L)
- Restaurant Group PLC (RTN.L)