Broker tips: Ashtead, Intertek, StanChart
Ashtead was given a boost on Tuesday after Deutsche Bank upgraded its rating on the equipment rental company to ‘hold’ from ‘sell’ at an unchanged target price of 1,600p.
Deutsche Bank said its fears about the impact of macro-economic challenges have tempered following recent stronger data. The bank had previously expected a steady de-rating.
Last year US non-residential construction rose 3% in October and 4% in November after decelerating from 10% in January to 1% in September, the bank noted.
Deutsche Bank said it also recognises that following the election, US policy changes have the potential to stimulate growth. The bank’s economists have materially upgraded GDP expectations since the election.
“We therefore push out our expectations of a de-rating, and no longer believe the market will imminently imply a slowdown in the Ashtead multiple,” Deutsche Bank said.
“We also recognise that Ashtead’s shares have some scarcity value for UK long only fund managers seeking exposure to US GDP and fiscal stimulus.”
The bank has upgraded its forecasts for fiscal year 2017 earnings per share by 4.5% and 2018 EPS by 7.1%. However, Deutsche Bank said momentum can quickly change given the nature of Ashtead’s end market.
“With consensus enterprise value/sales back at 3.0x, we consider it important to continue to monitor the end markets carefully. On a 24m view we remain cautious over valuation.”
The third quarter results are due on 7 March and Deutsche Bank expects group adjusted pre-tax profit of £177m.
Credit Suisse has downgraded Intertek to ‘underperform’ from ‘neutral’ and cut the price target to 3,200p from 3,400p as it took a more cautious view on the rate of recovery in the resources operations and increased risk to its consumer and product divisions.
The bank said it expects organic growth to remain constrained in the shorter term with -0.2% organic growth in 2016 and 1.6% in 2017.
In the medium term, CS reckons organic growth can return to mid-single digit growth rates but said the path to this level of growth is likely to be constrained by the resources operations and rising risks related to geopolitical uncertainty.
“Given its operational exposure we think that Intertek is the most exposed of the major staffing companies if protectionist policies lead to indigestion in global trade routes. From a more positive perspective we think that Intertek can continue to add value and incremental growth from combining organic progression with further M&A.”
The bank cut its earnings per share forecast for 2017 and 2018 to 179p from 180.8p and to 191.2p from 194.3p, respectively.
Standard Chartered got a boost on Tuesday as Bank of America Merrill Lynch upgraded the stock to ‘buy’ from ‘neutral’ and lifted the price target to 900p from 735p, saying the bank was progressing towards reasonable returns.
Merill upped its 2018 pre-tax profit forecast by 18% to reflect higher returns on StanChart’s $140bn excess deposits and equity and a modest uplift for higher fixed income and FX trading.
BofA ML said it sees StanChart rebuilding profitability organically, with costs stable and income recovering to $17bn by 2020.
“This should offer an 8% return on tangible equity, re-geared to 9%,” Merrill said, adding that this is still low, depressed by continued QE in Japan and rates still weighing on deposit earnings.
“We believe the market will support the group’s independent strategy. However, in the event of disappointment, we believe the possibility of the end of the nine-year regulatory expansion and the new US administration open the potential for StanChart to seek a merger.”
BofA ML pointed out that StanChart’s market value is below 10% of its largest peers and its multiple is now an outlier at 0.7x tangible book.
“We see goodwill inherent in StanChart’s 56-country network; its US$ corporate operating deposit book; and its retail platform. Should the group conclude organic returns are capped, we believe an option it could pursue given the above could be to realise value through a sale.”