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The Expert View: SIG, Prudential and Royal Mail
Our daily roundup of analyst commentary on shares, also including Ocado and Kingfisher.
by Michelle McGagh on Mar 15, 2017 at 05:00
SIG is steadying the ship, says Peel Hunt
Specialist construction material supplier SIG (SHI) is expected to benefit from a new management team despite problems that Brexit and European elections could bring, according to Peel Hunt.
Analyst Clyde Lewis retained his ‘hold’ recommendation and target price of 103p on the stock following full year results that revealed profit before tax was 12.5% lower than last year at £77.5 million but in line with guidance. The shares were up 10%, or 10.8p, at 118p at the time of writing.
‘There are no surprises on current trading which remains mixed,’ he said.
‘The group has appointed a new chief executive – Meinie Oldersma from Brammer – and together with Nick Maddock who recently joined as chief financial officer, there is a renewed focus on customers, sales growth and reducing gearing.’
Lewis added that there had been some asset disposals, slowing of capital expenditure and rebasing of the dividend to help reduce gearing.
‘The news of a fresh, experienced management team to refocus the business should be taken well, but we leave the shares on our watch list for now,’ he added.
Jefferies: Kingfisher faces competition from down under
Australian DIY company Bunnings, owner of Homebase, is expected to bring competition to B&Q owner Kingfisher (KGF) in coming years, says Jefferies.
Analyst James Grzinic retained his ‘hold’ recommendation and target price of 325p on Kingfisher following an investor trip with Bunnings. The shares were trading up 0.5%, or 2p, at 338p at the time of writing.
Grzinic said the trip ‘highlighted the extent to which Homebase is improving under new ownership, but also some challenges’.
‘Still, this will be a tougher competitor for Kingfisher in the years ahead,’ he said. ‘The extent of this upper attrition will depend on the speed of deployment of the Bunnings format, which at this stage remains unclear.’
He added: ‘It is undeniable that Bunnings’ attempts to grow in the UK will make for a more challenging UK competitive dynamic than a Home Retail Group-owned Homebase would have.’
Ocado best places for shopping shift, says Numis
Online supermarket Ocado (OCDO) reported a solid trading in the first quarter and Numis still believes it is best placed to benefit from the rise in ‘central fulfilment models’ in shopping.
Analyst Andrew Wade retained his ‘buy’ recommendation and target price of 400p on the stock, which was trading up 5.2%, or 13.5p, at 271p at the time of writing.
‘Ocado has posted a solid first quarter and continues to outpace the market, with top-line growth of 13.1%, in line with our expectations,’ he said.
‘The statement contains no surprises, including the fact that average basket declines are ameliorating alongside the onset of industry-wide pricing inflation.’
He added that the update was ‘reassuring’ but had little in the way of news.
‘More broadly we continue to believe that the central fulfilment model will prove to be the most efficient option for online grocery operators of scale and that Ocado is developing the most advanced and economic end-to-end technology platform for third-party retailers.’
Asia still the jewel in Pru’s crown, says Hargreaves Lansdown
Prudential (PRU) has racked up a seventh year of consecutive double-digit Asian growth, which Hargreaves Lansdown said remains the jewel in the insurer’s crown.
Prudential reported full-year operating profits of £4.3 billion with a final dividend of 30.57p, supporting a 12% increase in full-year dividend payments. The shares were up 3%, or 49p, at £17.13, at the time of writing.
Analyst Nicholas Hyett said that although the US and M&G businesses put in ‘consensus-beating performance’ it was Asia ‘which remains the jewel in Prudential’s crown’.
‘An impressive regional performance, with life insurance operating profits up 15%, masks some truly stellar results, including 83% growth in insurance income from China and 40% growth in Hong Kong,’ he said.
‘With a dividend yield well below that of rival UK life insurers, it’s the growth potential that makes Prudential attractive to investors. As emerging market populations become increasingly wealthy, the protection products Pru offers become increasingly attractive.’
These new consumers should mean ‘income streams for years or even decades to come’.
Royal Mail new pension deal could bring cost and risk, says Liberum
A proposal from unions to replace the Royal Mail (RMG) defined benefit (DB) pension scheme with a hybrid scheme will be costly and pose risks for the company, says Liberum.
The Communication Workers Union has put forward a plan for a hybrid pension scheme that is a cross between a DB scheme, which it operates at present, and a defined contribution (DC) scheme.
Analyst Gerald Khoo retained his ‘sell’ recommendation and target price of 400p following the news. The shares were trading flat at 406p at the time of writing.
‘A union proposal for a hybrid scheme to replace the current DB pension scheme suggests a willingness to compromise and acceptance of the financial unsustainability of the DB scheme,’ he said.
‘We believe the proposals would be likely to result in higher costs and risks for Royal Mail than a DC scheme. That might be acceptable given the risk of industrial action, but expanding the hybrid arrangement to current DC scheme members would risk pushing up the cost of pension provision for those staff.’
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Look up the shares
- SIG PLC (SHI.L)
- Ocado Group PLC (OCDO.L)
- Kingfisher PLC (KGF.L)
- Royal Mail PLC (RMG.L)
- Prudential PLC (PRU.L)