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The Expert View: Unilever, Imagination Technologies and RBS
Our daily round-up of analyst recommendations and commentary, featuring Dunelm, Falkland Oil and Gas, and Immunodiagnostic Systems.
by Harry Brooks on Sep 18, 2012 at 05:01
We’ve chosen some of the best comment from analysts to give you their views on Unilever, Imagination Technologies, RBS, Dunelm, Falkland Oil and Gas, and Immunodiagnostic Systems.
UBS upgrades Unilever
Alan Erskine, analyst at UBS, has upgraded consumer goods giant Unilever (ULVR.L) from 'neutral' to 'buy', saying the company's food division is 'finally getting its act together'.
The analyst said that for the first time the company has in place a food strategy that will exploit its size to drive sales and increase competitive advantage. He said sales have the potential to grow by 5% a year, up from an averate of 3% in the past decade.
'We expect the portfolio to become more sharply focused (including a reduction in the ‘tail’ of local brands), which – combined with an increasing exposure to the emerging markets (currently over 40%) – will accelerate foods organic sales growth to 5% per annum by 2015 (versus an average of 3% over the last decade) and make it more reliable,' Erskine said.
The company currently trades on a 2013 enterprise value to earnings multiple of 10.2x, he noted, the same as Nestlé. 'Believing there to be some residual scepticism regarding Unilever’s reliability and an under-appreciation of the changes taking place in the food business, we see scope for multiple expansion over the next 12 months,' he added.
Shares in the group, which feature in Citywire Top Stocks ®, closed at £22.68 on Monday, up 23p or 1.02%.
UBS downgrades Imagination Technologies
David Mulholland, analyst at UBS, has downgraded chip maker Imagination Technologies (IMH.L) from 'neutral' to 'sell', saying the current valuation of the shares no longer takes account of the competitive risks to the company.
Mulholland warned that the graphics sector has relatively low barriers to entry, and that Imagination's competitors are investing heavily.
'We continue to view barriers to switching in graphics as low due to the presence ofstandardised interfaces that make it relatively easy to switch graphics IP supplier,' he said. 'While this does not automatically mean lost market share we believe itcould also lead to pricing (royalty rates) coming under pressure longer-term.'
Mulholland said Imagination currently trades at 44x 2013 earnings, compared with 38x for key rival ARM Holdings, despite the pair having similar projected earnings growth.
Shares in the group closed at 566.5p on Monday, down 23.5p or 3.98%.
Investec downgrades Royal Bank of Scotland
Ian Gordon, analyst at Investec, has downgraded Royal Bank of Scotland Group (RBS.L) from 'hold' to 'sell', saying the shares have got ahead of themselves.
'Despite wider events, the scale/pace of RBS’ share price rally over the past two weeks has been impressive, almost matching resurgent Barclays,' Gordon said. The shares have gained 42% over the past eight weeks.
Gordon said good progress is being made in shoring up the balance sheet, and that an easing of regulatory liquidity requirements would also help RBS. Nonetheless, he thinks the shares have gone too far too fast.
'With weak 'core' profitability, and legacy bills to pay, the return on equity outlook appears simply too weak to support the current valuation. Downgrade to sell,' he said.
Shares in the group closed at 274.5p on Monday, down 4.5p or 1.61%.
Nomura downgrades Dunelm
Sunita Entwisle, analyst at Nomura, has downgraded homewares retailer Dunelm (DNLM.L) from 'buy' to 'neutral', saying investors should wait for a better entry point.
2012 pre-tax profits came in at £96.2 million, which was in line with expectations, and also announced a special cash return of 32.5p per share on the back of strong cash flow despite continued investments.
'In our view, Dunelm remains the key growth stock in the UK, with a strong balance sheet, space potential, roughly 25% return on invested capital and opportunities presented as the business matures,' the analyst said.
'However, the stock is now trading at about a 25% premium to historical levels (historical 12 month forward price-to-earnings average 13x), with data suggesting the homewares market has been challenging more recently, and we would look for a better entry point to become involved.'
Shares in the group closed at 657.5p on Monday, up 17p or 2.65%.
Merchant Securities puts Falkland Oil and Gas under review
Brendan Long, analyst at Merchant Securities, has put his recommendation for Falkland Oil & Gas (FOGL.L) under review following a statement saying it has hit gas, but that it's not yet clear whether the discovery will prove commercially viable.
The company said it made a gas discovery at its Loligo exploration well in the South Atlantic, but that 'it has not been possible to determine whether this gas has any liquid content'.
Long said until the well is verified it's hard to know what the discovery means. 'The scale of the resource is potentially enormous. However, we are cautious because the reservoir was unable to produce a good sample and because the water saturations were reported to be high.
'We will update our valuation and target price (previously 337.9p) in due course. We are placing our recommendation Under Review from Buy, while we update our valuation.'
Shares in the group closed at 74.55p on Monday, up 4.3p or 6.12%.
FinnCap trims forecasts for Immunodiagnostic Systems
Keith Redpath, analyst at FinnCap, has reduced his earnings forecasts for medical equipment company Immunodiagnostic Systems (IDH.L) following a trading update that revealed falling sales.
In the first five months of the year revenues hit £19.9 million, down 15% year-on-year.
The analyst said the lower price and sales volumes for the company's manual vitamin D tests were expected, but its IDS-iSYS automatic testing machine is not selling as fast as predicted in spite of a big marketing push.
'We are not overly surprised, and have previously highlighted the risks of selling adiagnostic machine with a very limited menu of tests into a highly competitive market dominated by four multinationals with an installed base of instruments and a more extensive test menu,' he said.
'We reduce our forecasts for 2013 and 2014, and our price target to 260p.' Redpath retains his 'hold' recommendation on the shares.
Shares in the group, which feature in Citywire Top Stocks ®, closed at 258.3p on Monday, up 7.3p or 2.91%.
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Look up the shares
- Unilever PLC (ULVR.L)
- Dunelm Group PLC (DNLM.L)
- Royal Bank of Scotland Group PLC (RBS.L)
- Falkland Oil And Gas Ltd (FOGL.L)
- Immunodiagnostic Systems Holdings PLC (IDH.L)
- Imagination Technologies Group PLC (IMG.L)