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The Expert View: Bovis Homes, Interserve & HSBC
Our daily roundup of analyst commentary on shares, including Segro and Homeserve.
by Michelle McGagh on Mar 14, 2017 at 05:01
Bovis still a bid target, says Liberum
Bovis Homes (BVS) has rejected takeover bids from Redrow and Galliford Try but is still in talks to do a deal with the latter and could become a target for another company, says Liberum.
Analyst Charlie Campbell retained his ‘hold’ recommendation but increased his share price target from 757p to 886p as the stock surged 88p to close 10.6% up at 916p.
‘Discussions with Redrow have been terminated but are ongoing with Galliford Try. Neither proposer is desperate to do this deal as land is readily available in the open market, but there is scope to improve operating margins at Bovis significantly. We still think there could be other potential buyers,’ he said. ‘We increase our target price…to reflect merger activity.’
Campbell added that the bids were ‘opportunistic’ and that ‘both managements would be confident of improving returns at Bovis through improving the production process and reducing overheads’. Other potential bidders could include construction groups and larger housing associations, he said.
Peel Hunt: Interserve’s new boss has her work cut out
Peel Hunt has downgraded its recommendation for Interserve (IRV) a week after the support services and construction group appointed a new chief executive who the broker says has to deal with ‘significant’ challenges.
Analyst Andrew Nussey lowered his rating from ‘hold’ to ‘reduce’ and slashed his share price target from 250p to 200p after the company announced Debbie White, former CEO of government and healthcare at Sodexo Group, would replace Adrian Ringrose as chief executive in September.
News of Ringrose’s departure came two weeks after the company suspended its dividend and plunged to a £94.1 million loss after doubling the cost of its exit from the energy-from-waste sector.
The shares have declined over 8% in the past week and yesterday tumbled 13p to close 5.6% down at 220.75p.
‘The challenges facing the new chief executive are significant but with her support services/finance background, there must be a temptation to radically refocus the group,’ he said.
‘However, given the continuing risks from waste to energy and the growing debt burden, the window for proactive change is limited. In our view, the valuation support provided by equipment services is not compelling enough to offset the risks, many beyond management’s control.’
Shore Capital unsure about HSBC despite Mark Tucker appointment
Shore Capital may be happy about the appointment of Mark Tucker as non-executive chairman of HSBC (HSBA) board but it is still negative on the bank’s shares.
Analyst Gary Greenwood retained his ‘sell’ recommendation following Tucker’s appointment. The shares firmed 6p to 672.7p yesterday.
‘HSBC has announced that Mark Tucker, the current president and chief executive of AIA Group and a former chief executive of Prudential, will join the board on 1 September,’ he said.
‘The appointment of Tucker fits the bill in terms of bringing someone in with plenty of Asian experience and also a high profile in London. It is also good to see an external appointment who may bring a fresh perspective, after a history of promoting within. One of Tucker’s first jobs will be to find a replacement for chief executive Stuart Gulliver, who is expected to leave the group next year.’
However, Greenwood said that while he ‘welcomed’ Tucker’s appointment, ‘we remain negative on HSBC’s shares which continue to trade at a premium to our current fair value estimate of 575p’.
Numis: Segro raised more than it needed for Heathrow deal
Numis Securities has questioned the need for industrial property developer Segro to launch a £556 million rights issue to take control of a portfolio of buildings at Heathrow airport.
Segro agreed to pay Aviva £365 million for the remaining stake in the Airport Property Partnership it did not own.
The acquisition was funded by the sale of other assets, including four London buildings, and a one for five rights share issue priced at 345p.
Retaining his ‘hold’ recommendation and share price target of 494p, analyst Robert Duncan said he had ‘mixed views’ on the transaction.
‘While we agree with management on the merits of the APP joint venture buyout, and do indeed believe investors will receive an incrementally higher return from owning the assets outright rather than in joint venture, we see the £340 million equity raised over and above the £216 million required for APP as being a not wholly necessary drag on returns.’
Segro said that it would use the extra money to build more properties, citing increased occupier demand.
Duncan added that while he was ‘not adverse to real estate investment trusts using their [share] paper to fund growth’, he said: ‘If Segro really is as confident in the cyclical outlook and the returns available from its development pipeline, then the scale of the rights issue sends a mixed message’.
Having fallen 5.6% on Friday when the deal was announced the shares firmed on Monday to close 7.5p or 1.7% up at 455.5p.
Homeserve gives Jefferies the jitters
Jefferies has downgraded Homeserve (HSV) over concerns about the impact of insurance premium tax rises and regulatory changes on the emergency home repairs business.
Analyst Will Kirkness lowered his recommendation from ‘hold’ to ‘underperform’ and reduced his share price target from 560p to 460p. The shares slid 35p yesterday to close over 6% down at 525p.
‘With the US growth potential largely priced in, we worry about momentum in the UK over the next 12 to 18 months driven not just by a doubling of insurance premium tax but due to prescriptive changes mandated by the Financial Conduct Authority on policy renewals,’ he said.
‘With some questions over the strategic rationale of recent digital investments and mixed history overseas, we move to “underperform”.’
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Look up the shares
- Bovis Homes Group PLC (BVS.L)
- HSBC Holdings PLC (HSBA.L)
- Interserve PLC (IRV.L)
- SEGRO PLC (SGRO.L)
- HomeServe PLC (HSV.L)