The Expert View: RBS, EMIS Group and Workspace

Our daily round-up of analyst recommendations and commentary, featuring EMIS Group, RBS, Workspace, Rentokil and Diageo.

Key stats
Market capitalisation	£480m
No. of shares out	59m
No. of shares floating	27m
No. of common shareholders	not stated
No. of employees	898
Trading volume (10 day avg.)	0m
Turnover	£73m
Profit before tax	£17m
Earnings per share	28.71p
Cashflow per share	40.33p
Cash per share	21.53p

*Correct as at 25 Sep 2012

Merchant Securities lifts target price for EMIS Group

Roger Phillips, analyst at Merchant Securities, has increased his target price for medical software business EMIS Group (EMIS.L) on news that a rival company's product is being withdrawn.

CSC, which also makes computer programs for GPs' offices, is to leave the market by the end of 2013. In a statement following the announcement Sean Riddell, chief executive of EMIS, acknowledged that the loss of a well-used GP system will be unwelcome, but he said EMIS would do its best to ensure a smooth transition.

Phillips said the news could see EMIS gain 582 sites in a best-case scenario, representing a 10% gain in GP sites.

'The rough maths is that a 50% share gain (about 300 sites) at £13,000 per annum revenue per practice (assuming EMIS Web is deployed) could eventually yield an additional £4 million in revenue per annum,' he said.

Shares in the group closed at 825p on Tuesday, up 17.5p or 2.17%.

Key stats
Market capitalisation	£153,376m
No. of shares out	57,017m
No. of shares floating	52,526m
No. of common shareholders	not stated
No. of employees	142800
Trading volume (10 day avg.)	16m
Turnover	£21,410m
Profit before tax	£-2,044m
Earnings per share	-18.89p
Cashflow per share	-1.30p
Cash per share	139.26p

*Correct as at 25 Sep 2012

Investec says 'sell' RBS

Ian Gordon, analyst at Investec, has reiterated his 'sell' recommendation on Royal Bank of Scotland (RBS.L) following a meeting with the group's executive team where further details of downsizing plans were revealed.

Back in January a targeted headcount reduction of 3,500 (about 25%) was announced, and this has now been increased to 3,800, to be completed by the end of 2013.

'After the cost-to-income ratio hit 179% in the third quarter of 2011, few would deny that a material downsizing was necessary and appropriate,' Gordon said.

However, despite believing the group's markets division is heading in the right direction, Gordon remains negative on the shares: 'Markets is broadly delivering on what it promised, but the sum of such progress, in combination with legacy realities, is an inadequate group return on equity of just 4% by 2014. Sell.'

Shares in the group closed at 269.69p on Tuesday, down 1.81p or 0.67%.

Key stats
Market capitalisation	£385m
No. of shares out	144m
No. of shares floating	111m
No. of common shareholders	not stated
No. of employees	162
Trading volume (10 day avg.)	0m
Turnover	£67m
Profit before tax	£49m
Earnings per share	35.49p
Cashflow per share	35.85p
Cash per share	17.00p

*Correct as at 25 Sep 2012

Peel Hunt upgrades Workspace

Keith Crawford, analyst at Peel Hunt, has upgraded Workspace (WKP.L) from 'hold' to 'buy', believing it to be one of the few developers able to capitalise on both the London small to medium-sized enterprise market and the residential property market.

'We expect about 10% net asset value (NAV) growth per year and about 4% dividend yield from here: this allows for 3% per year increases in the portfolio value as occupancy of 85%-plus supports modest rental progress,' Crawford said. Based on the analyst's new NAV forecast the shares trade on a 22% discount.

Unlike many other developers in the region, Workspace doesn't need to buy any land at the moment, having nearly 5 million square feet already.

'Management are hosting a strategy presentation on 17 October and furthergood news could act as a catalyst for the stock. And, on 2 October, we expectWorkspace to announce the results of the launch of their seven-year, £75 million retail bond. This should diversify lending sources and extend debt maturity,' Crawford added.

Shares in the group closed at 266.37p on Tuesday, up 5.87p or 2.25%.

Key stats
Market capitalisation	£1,496m
No. of shares out	1,809m
No. of shares floating	1,782m
No. of common shareholders	not stated
No. of employees	66470
Trading volume (10 day avg.)	5m
Turnover	£2,544m
Profit before tax	£-70m
Earnings per share	-3.84p
Cashflow per share	10.18p
Cash per share	4.27p

*Correct as at 25 Sep 2012

Oriel backs Rentokil's US acquisition

Hector Forsythe, analyst at Oriel, has reacted positively to many-armed services group Rentokil Initial (RTO.L)'s acquisition of US pest-control business Western Exterminator.

The the US business currently brings in about $150 million of revenues a year, he said, and Rentokil will pay $99.6 million upfront plus a conditional consideration of up to $15 million within 18 months.

Forsythe said the acquisition, Rentokil's largest for a number of years, will take year-end net debt to about £950 million, restricting the scope for more acquisitions without fund raising.

'The deal is however accretive from day one and will be strongly accretive in future periods: assuming a 20% margin in 2013 (perhaps too early) it would add 7% to earnings per share. That should be enough for a positive reaction from the share price,' Forsythe added. He retains a 'hold' recommendation on the shares.

Shares in the group closed at 82.75p on Tuesday, down 0.65p or 0.78%.

Key stats
Market capitalisation	£43,953m
No. of shares out	2,507m
No. of shares floating	2,491m
No. of common shareholders	not stated
No. of employees	27483
Trading volume (10 day avg.)	6m
Turnover	£10,762m
Profit before tax	£1,953m
Earnings per share	77.84p
Cashflow per share	97.05p
Cash per share	42.94p

*Correct as at 25 Sep 2012

Shore Capital says 'buy' Diageo amid United Spirits stake talks

Phil Carroll, analyst at Shore Capital, has reiterated his 'buy' recommendation on drinks maker Diageo (DGE.L) amid news it is in talks with Indian company United Spirits to buy a stake in the business.

Carroll said the market was aware of the possibility of a deal with United Spirits because of the financial problems at its holding company. The root of these problems is its loss-making airline business Kingfisher, he added.

'We believe a deal with United Spirits would provide Diageo with a stronger route to market in India, which has a fast growing emerging middle class consumer,' Carroll said.

'It would also enable Diageo to work more easily around the complex structure of interstate tariffs in the country due the way United Spirits is setup in each state. Therefore, on the face of it, we believe today’s announcement is good news.'

Shares in the group closed at £17.56 on Tuesday, up 29.48p or 1.71%.