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The Expert View: Travis Perkins, Premier Oil and Mecom
Our daily round-up of analyst recommendations and commentary, featuring Bunzl and Diageo.
by Harry Brooks on Aug 22, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Travis Perkins, Premier Oil, Mecom, Bunzl and Diageo.
Berenberg Bank downgrades Travis Perkins
Michael Watts, analyst at Berenberg Bank, has downgraded building materials firm Travis Perkins (TPK.L) from 'hold' to 'sell' following a rally in the shares.
The shares have gained about 15% over the past three months and 32% in the year to date, which Watts said was hard to justify given consensus earnings forecasts that are largely unchanged since the start of the year.
'Recent interim results were in line with expectations and although management expects to meet current FY 2012 consensus expectations, we see the lack of any significant earnings progression in 2013 as a reason to take profits,' he added.
Watts has also trimmed his 2013 and 2014 earnings per share forecasts by 6% based on what he expects to be a subdued UK construction sector, particularly in new home building.
'While it is not expensive as such, the stock now has a full valuation given the subdued earnings outlook, in our view,' he concluded.
Shares in the group closed at £10.61 on Tuesday, up 9p or 0.86%.
Deutsche Bank lifts target price for Premier Oil
Phil Corbett, analyst at Deutsche Bank, has increased his target price for Premier Oil (PMO.L) based on the potential of the company's Sea Lion prospect in the Falklands.
Although the analyst acknowledged that the project is not without risk (political tensions with Argentina run alongside the usual risk of well failures), he said this is a fact of life when upstream opportunities are in short supply, and reiterated his 'buy' recommendation.
'Although Sea Lion faces several development hurdles, these do not appear particularly onerous, and Premier's offshore track record warrants a positive valuation treatment, in our view,' he said. 'With regard to regional tensions, the scope for heated rhetoric to impact share prices and sentiment remains, although the recent entry of Noble and Edison suggest the industry is adopting a lower a lower risk profile.'
Based on the upside potential of Sea Lion Corbett has increased his target price from 510p to 580p.
Shares in the group closed at 388.97p on Tuesday, down 2.53p or 0.65%.
Peel Hunt upgrades Mecom
Patrick Yau, analyst at Peel Hunt, has upgraded London-headquartered local newspaper publisher Mecom (MEC.L) from 'hold' to a speculative 'buy', believing that a disposal of assets could see the shares almost double in value.
In its June trading update, Mecom announced that it was undertaking a strategic review following significant declines in advertising in its core Dutch market, which Yau said may well mean selling off some or all of its assets.
'Our analysis of the group’s potential break-up valuation suggests a reasonable value of Mecom’sassets of €435 million. Accounting for pension deficits and net debt, the equity value is £192 million, or 167p per share, broadly in line with our target price,' he said.
Yau cautioned that regulatory hurdles would mean disposals could take some time to complete.
Shares in the group closed at 82.75p on Tuesday, up 3p or 3.76%.
Oriel reiterates 'add' on Bunzl
Hector Forsythe, analyst at Oriel Securities, has reiterated his 'add' recommendation on Bunzl (BNZL.L), believing the distribution and outsourcing group's strong performance over the past year is set to continue.
Shares in the group have gained 40% over the past year relative to the FTSE All Share index, re-rating the shares from a 12-month forward price-to-earnings ratio of 11x to nearly 15x.
'Bunzl is a stock for our times, and we see no reason for appeal of Bunzl’s fundamentals to lessen. There is scope for the shares to re-rate further,' Forsythe said. He praised the company's low to mid-single digit organic growth and an acquisition programme that converts free cash flow to earnings growth.
News on further acquisitions will act as the main driver for the shares, Forsythe said. 'Interims are scheduled for 28 August: we’re looking for pre-tax profits of £147 million, +6%. We’re estimating organic growth of 4%, stronger in the US, and the UK now positive.'
Shares in the group closed at £11.12 on Tuesday, up 4p or 0.36%.
JP Morgan raises target price for Diageo, reiterates 'underweight'
Matthew Webb, analyst at JP Morgan, has increased his target price for drinks maker Diageo (DGE.L), but he reiterated his 'underweight' recommendation as he believes the company's growth targets will prove tough to realise.
'In a world of slower GDP growth DGE’s 6% organic sales growth target is looking ever more stretching, though margins are underpinned by cost saving. We see little opportunity for earnings upgrades from here,' he said.
Webb added that historically the company's real sales growth has tended to match global GDP, which doesn't make him optimistic. Furthermore, he said a 15.7x price-to-earnings ratio, ahead of the sector average of 15.3x, means the shares look pricey.
His target price rises from £13.76 to £15.60 as a result of higher medium-term sales forecasts and a lower projected cost of capital.
Shares in the group closed at £16.85 on Tuesday, down 1.5p or 0.09%.
More about this:
Look up the shares
- Premier Oil PLC (PMO.L)
- Diageo PLC (DGE.L)
- Travis Perkins PLC (TPK.L)
- Bunzl PLC (BNZL.L)
- Mecom Group PLC (MEC.L)