Date: Monday 21 Jun 2010
The recovery at bus and rail firm National Express may be subject to delays, management said in an investor presentation posted on the company web site. It is a view that chimes with broker KBC Peel Hunt’s verdict on the company.“The presentation introduces clear time indications for strategic actions. It is clear that the majority of actions will be effective in 2011 rather than 2010,” KBC analyst Paul Hickman observes.
“We are cautious on recovery, and both our 2010 and 2011 earnings per share forecasts are around 5% below consensus average,” the broker said.
Rumours that the Daily Star is about to cut its cover price has had little effect on the share price of Trinity Mirror, publisher of the Daily Mirror, suggesting that the market has already priced in the effects of a new tabloid newspaper price war.
“The Daily Star cut its price some time ago (from 35p to 20p) and we would not be surprised to see further aggression to drive circulation volumes in a bid to improve advertising sales,” speculates Johnathan Barrett, investment analyst with Singer Capital Markets.
“A price cut to the 10p level may perversely increase circulation volumes across the industry as there has been some evidence that consumers will buy two or more papers when prices reach very low levels. Trinity Mirror would be unlikely to benefit from this given its policy on maintaining cover price and not competing in price wars (note circulation equated to 58% of its Nationals revenues in 2009),” Barrett added.
Singer is not changing its recommendation on the stock, which is to buy. The stock trades on a P/E [price/earnings] of just 4.0x and an EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] of just 5.3x including the pension liability. This appears to more than adequately discount the near term headwinds (concerns over UK budget, softening advertising market and cover price competition),” Barrett says.
The possibility of a price cut is certainly not making Panmure Gordon any keener on the shares. It notes the likely negative impact on the Mirror’s circulation revenue but sticks with its “hold” recommendation and 105p target price.
“The shares have performed very poorly recently. However, this latest cover price development may prevent a bottoming out at current levels. There is no dividend support,” Panmure analyst Alex DeGroote said.
The acquisition announced Monday morning by Xchanging is unlikely to have much impact on the business process outsourcing company’s earnings this year, Panmure Gordon reckons, but benefits should start to feed through in 2011 and 2012.
Xchanging has bought Data Acquisition, a networking, security and communications technology provider, for £6.5m up front in cash with a further earn out of £2.5m payable contingent on the company hitting profit targets.
The broker remains neutral on the investment case for the company’s shares. The price/earnings ratio of 11.8, based on projected 2010 earnings per share, looks undemanding while “on an EV [enterprise value] basis the shares also look inexpensive trading on a 2010E [2010 estimated] EV/EBITDA [earnings before interest, tax, depreciation and amortisation] of 4.3x falling to 3.7 in 2011E and EV/EBIT of 6.3x and 5.2x.”However, in order for the company’s shares to warrant broker upgrades “the company will have to show clear signs of it being able to drive its pipeline for this to materialise.”
The broker is sticking with its target price of 200p “for now”.
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