Date: Thursday 08 Jul 2010
Nomura Securities has initiated coverage of Associated British Foods in the wake of the company’s trading update and thinks the stock is undervalued.It’s initial recommendation is “buy” with a price target of 1160p, giving a potential 20% upside to the current share price.
“Domestic expansion and a more aggressive international roll-out agenda for Primark along with margin uplift opportunities in food should deliver better-than-expected profit growth over the next few years,” Nomura analyst Alex Smith predicts.
“As the market increasingly recognises international growth prospects for Primark and warrants it with an international peer group premium rating, the implied food discount to peers at 35% looks too great for a business that should deliver short-term double-digit profit growth,” Smith maintains.
Charles Stanley takes a contrary view and maintains its “reduce” recommendation on valuation grounds. Based on Charles Stanley’s earnings forecast for 2011, the stock is trading on a price/earnings ratio of 13.2.
“A brief outlook statement indicates that overall trading remains on track to deliver very good progress in earnings for the full year insufficient, in our view, to generate estimate upgrades as this conclusion had already been anticipated by the market,” said Jeremy Batstone-Carr, head of investment research at Charles Stanley.
The anticipated decline in public sector recruitment opportunities is now reflected in the share price of Hays, according to KBC Peel Hunt, which has turned less bearish on the stock after Thursday’s trading update.
“In the short to medium term we see no catalysts for the stock and note the 6.4% yield should underpin the shares at these levels. We therefore move our recommendation from Sell to Hold,” said KBC analyst Henry Carver.
The recruitment firm said that trading has been in line with management expectations, leaving the broker comfortable with its existing earnings estimates.
It is predicting adjusted profit before tax for fiscal 2010 (to June) of £66.6m, while for the year after it is going for £86.1m.
The fatalities at the Marikana 4 shaft on Tuesday could result in Aquarius Platinum coming under closer scrutiny from the Department of Mineral Resources in South Africa and may lead to more suspensions of operations, Panmure Gordon speculates.
“Whilst the direct impact on production is likely to be limited we expect an indirect impact from more frequent safety-related stoppages and are reducing our FY2011E [fiscal 2011 estimated] production forecast by 1% and EBITDA [earnings before interest, tax, depreciation and amortisation] by 2%,” the broker said.
The Mariakana tragedy follows two fatalities at Blue Ridge in the past month. As well as increased scrutiny from the authorities, Aquarius may also find itself dealing with anxious workers if the situation is not carefully managed, Panmure analyst Alison Turner argues.
The broker rates the stock a “sell” and has a target price of 300p.
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