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The Expert View: BP, Anglo American and Balfour Beatty
Our daily roundup of analyst commentary on shares, also including St Modwen Properties and OneSavings Bank.
by Michelle McGagh on Mar 17, 2017 at 05:00
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BP ‘meaningfully undervalued’, says Barclays
Barclays believes the next five years will be ‘transformative’ for undervalued BP (BP).
Analyst Lydia Rainforth retained her ‘overweight’ recommendation and target price of 625p on the stock, which was trading up 1.1%, or 5.2p, at 461p at the time of writing.
‘The coming five years should be transformative for BP. In the upstream (exploration and production), sector-leading volume growth ambitions of 5% to 2021 look achievable and combined with greater efficiency should yield much improved results,’ she said.
‘Yet it is the plans for the downstream that have the potential to deliver the biggest positive surprise to the market.’
She said the attraction in the investment case was ‘in the simplicity’.
‘If the dividend is sustainable, then the shares, which offer a 7% yield, remain meaningfully undervalued,’ said Rainforth.
Anglo American approach underlines mining recovery, says Jefferies
Volcan Investments’ plans to buy a £2 billion stake in Anglo American (AAL) shows the next stage of the mining sector recovery is under way, according to Jefferies.
Analyst Christopher LaFemina retained his ‘hold’ recommendation and target price of £14.00 on Anglo American after Anil Agarwal’s Volcan Investments announced plans to buy the stake in Anglo. He said this could take place over the next 15 days if necessary.
‘This equates to a 13% interest in Anglo,’ said LaFemina. ‘Volcan has said it does not intend to make an offer to acquire all of Anglo American and therefore cannot do so for at least six months, as per the UK Takeover Code. Agarwal is the chairman and founder of Vedanta, in which Volcan owns a 69.4% stake.’
He said the move by Volcan shows the recovery in mining has further to go.
‘Our expectation has been that the mining sector recovery would comprise three separate phases: phase one, which is mostly complete, was the balance sheet recap trade of 2016. Phase two, which is happening now, is the cashflow and capital returns phase. Phase three, which we have expected to start in 2018, is the growth and M&A phase. It is possible that phase three is beginning now,’ he said.
The shares were trading up 9.2%, or 109p, at £13.04 at the time of writing.
Numis: Balfour Beatty offers upside
Engineering group Balfour Beatty (BALF) currently offers investors upside potential, according to Numis.
Analyst Howard Seymour retained Numis’s ‘add’ recommendation and target price of 320p on the stock, which was trading down 2.1%, or 6p, at 277p at the time of writing.
He was impressed by the ‘concrete targets’ set for the company’s service operations and ‘a more selective approach to investments crystallisation’. Seymour said both moves should be seen as a signs of ‘increased management confidence’. They also provide upside potential to services earnings and investments asset value.
Seymour is also positive about the move back to 'industry standard' margins over the next 24 months, now outlined by the chief executive as hard margin targets.
‘We see these targets as sensible, and expect a linear improvement over this period in UK construction and all other service divisions, so retain our profit expectations for services.
Peel Hunt puts OneSavings Bank target price under review
Peel Hunt has raised its forecasts for challenger bank OneSavings Bank (OSB) after it increased pre-tax profit by 29% to £137 million.
Analyst Anthony Da Costa retained his ‘buy’ recommendation but placed the 432p target price ‘under review’ following the above-consensus results.
‘Updated guidance will upgrade our 2017 forecasts by at least 10% supported by a strong pipeline, a benign credit environment and cheap funding,’ he said.
‘On our conservative forecasts the stock trades on 2.1x 2017 estimated net asset value or 10.7x 2017 estimated earnings.’
He is expecting upgrades to ‘increase the target price above 432p’.
Tap into St Modwen’s ‘significant discount’, says Liberum
Property developer St Modwen (SMP) continues to offer value, despite a recent hick-up concerning its plans to divest Nine Elms Square in London, says Liberum.
Analyst David Brockton retained his ‘buy’ recommendation and target price of 360p on the stock. It was trading flat at 318p at the time of writing.
‘A setback in the potential divestment of Nine Elms Square does not derail the investment case for St Modwen,’ he said.
‘However, if capital controls are the principal cause for this outturn, it could have wider negative inference across the UK commercial market. Irrespective, we believe St Modwen’s shares continue to offer opportunity: the group can generate value in a benign end-market for regional land values, it has self-help potential, a new chief executive and some form of value realisation at Nine Elms Square is still possible.’
Brockton added that the shares trade on a ‘significant discount’ to 2017 estimated price/net asset value of 0.65x versus 0.84x for the sector.
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Look up the shares
- Balfour Beatty PLC (BALF.L)
- Anglo American PLC (AAL.L)
- St. Modwen Properties PLC (SMP.L)
- BP PLC (BP.L)
- OneSavings Bank PLC (OSBO.L)