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Panmure Morning Note 09-05-2016
09 May 16
Although the share price has fallen 32% in the past 12 months, we are still struggling to put together a compelling case for investment. We are not hiding behind last Friday’s trading update which was again littered with the word “challenging”; even when things were not challenging between 2012-2014, Morgan struggled to deliver. Essentially, we see nothing special about the new strategy which like the previous strategy relies on self-help and “attractive” markets. Rearranging the deck chairs, reducing costs and re-investing is not going produce growth from products that delivered a miserly CAGR of 1.3% between 2008 and 2015, and destroyed value.
Panmure Research - Industrial Engineering 20-01-16
20 Jan 16
The consensus is expecting sector revenues and earnings to bounce back in 2017, a position that reminds us of President Bush's “Mission Accomplished” speech. Chinese data may well be opaque, but if it is correct then there are two significant trends: 1. China's gross capital formation is falling sharply and needs to decline another 25% from 2015 levels to fall in line with world average; 2. China is successfully reducing energy/metal intensity of its economy with consumption and tertiary industries (aerospace, medical, optics, renewables, comms) generating bulk of the growth. This shift in China's GDP mix has already caused havoc in commodity, currency and credit markets. As the rebalancing continues, we believe it will remain difficult to forecast EPS for UK engineering stocks still heavily exposed to the energy/commodity complex. Attention will shift to balance sheets. Smiths Group and Morgan Advanced Materials are particularly vulnerable to rising refinancing costs. Weir may have to cut dividend to remain within covenants. Bodycote and Vesuvius, which we move to a BUY, seem most likely to pay an unchanged dividend over the next three years without relying on capital markets. Only GKN and Hill & Smith, which we move to a BUY, can be confidently expected to grow EPS and the dividend over the next three years and maintain a strong balance sheet.
Panmure Research - Industrial Engineering 18-09-15
18 Sep 15
The big surprise yesterday was not the profit warning from Rotork, but that it was not expected, at least judging by the share price reaction. It highlights the growing gap between consensus and the realities of the collapse in the emerging market/commodity complex. We learned one thing from Rotork. It is getting worse (we estimate 19% YOY decline in H2/15 vs -13% in H1). Every project, whether in oil & gas, power or general industrials, is now being reviewed. Some, if not many, will be cancelled or will need re-pricing. Currency movements are adding to the pricing pressure. In our coverage, the gap between consensus and reality seems the highest for Weir Group, where we have cut our target price by 10% to 1047p, followed by Vesuvius and Smiths Group.
Panmure Morning Note 23-07-15
23 Jul 15
We were wrong-footed by the interims and have been forced to review our 2015 forecasts. The investment in high-temperature Fibre has clearly paid off, helping the management to report a first restructuring-free EPS in a long time. However, the 10% constant currency growth in Fibre was flattered by the acquisition of Porextherm; we estimate underlying growth of 3%. Excluding Fibre, which now accounts for 31% and 41% of group sales and profits, respectively, the rest of the group experienced virtually no organic sales or profit growth in H1/15. Indeed, cracks are appearing in Technical Ceramics and non-Fibre Thermal Ceramics with interim profits down 10% and 50%, respectively. As Fibre begins to be impacted by the automotive and general industrial slowdown, we expect restructuring charges to reappear in H2/15, just as the new CEO begins get to know the company.
Panmure Research - Conviction List Q3 2015
01 Jul 15
Q2 has witnessed a post budget rally in domestic consumer cyclicals causing Bovis Homes to be the best performer in our Conviction List, followed by Ryanair. Disappointments in Q2 were on account of external factors such as the short on Weir being defeated by Oil Price strength and our long in Aviva being overwhelmed by Grexit sentiment. Our analysts stock specific picks for Q3 centre around reliable, quality earnings, with a strong valuation influence. The bottom up stock picks of our analysts suggest we are moving from risk on post budget to risk off ahead of Grexit.
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Fighting the waves
25 Oct 16
Management action in response to a tough trading climate and falling profits should contribute to a sound recovery in profits next year. Following share price weakness, the group is valued at a substantial discount to both the broking market leader Clarkson and to other peers. Meanwhile, if the dividend can be held, the shares offer a well above-average yield, pending an eventual improvement in trading conditions.
21 Oct 16
STM* (STM): Acquisition of London & Colonial (CORP) | Hurricane Energy (HUR): £70m placing and open offer (BUY) | Firestone Diamonds* (FDI): Liqhobong commissioning update (BUY) | Accsys (AXS): Acorn aiming to be a mighty oak – analyst interview (BUY) | Avacta* (AVCT): Act now… – analyst interview (CORP) | Tristel* (TSTL): Full year 2016 results – analyst interview (CORP)
N+1 Singer - Morning Song 21-10-2016
21 Oct 16
Xaar has announced that its FD, Alex Bevis, will be leaving to pursue other opportunities after almost 6 years with the group. A search is underway for his replacement and Alex will remain with Xaar until 24th March 2017. While Alex’s departure is disappointing, Xaar’s strategy remains on track, with new product launches expected to drive near term organic sales growth and a target of £220m sales by 2020. This reflects stronger leverage of Xaar’s innovative technology into a broader spread of end products and markets, with the £220m expected to be composed of broadly equal contributions from ceramics, packaging & product printing, Thin film/P4, and partnerships/M&A. Prospects for the group are exciting, with positive news flow on product launches and end markets anticipated over the year ahead.
FY17 expectations unchanged. Interim dividend maintained
25 Oct 16
Interims reflect tough markets which impacted Technical. Shipbroking delivered a resilient result and Logistics has performed well. The interim dividend has been held at 9.0p. The group anticipate an improvement in H2. The Board’s expectations for the year are unchanged based upon the strength of the order book due in H2, its ongoing market coverage and the benefits of action taken previously. We have retained our FY2017 PBT forecast of £8.7m and a maintained dividend. We reiterate our Buy and adjust our TP to 450p.
N+1 Singer - Morning Song 20-10-2016
20 Oct 16
A highly disappointing update from Senior reports a number of issues adding up to the Group being behind expectations. Following the Flexonics issues over the past 12 months, there are now issues on the Aerospace side which are affecting the outlook. In a period when some stability was required, this is disappointing. We have downgraded FY16 EPS by 6.8% and, whilst we see Senior remaining a US takeover target, we move from Buy to Hold (target price down from 262p to 196p) until more clarity is available on the direction of the Group.