Broker tips: Vodafone, Standard Chartered, Countryside Properties
City analysts were optimistic that talks between Vodafone and Liberty Global could finally lead to a concrete deal that would quickly benefit the FTSE 100 group's cash flow and boost earnings before long.
On Friday, confirming a newspaper article, Vodafone said it was in "early stage discussions" with John Malone's cable network owner regarding "the acquisition of certain overlapping continental assets owned by Liberty Global".
The overlapping continental European assets would be Germany, Netherlands, Hungary, Czech Republic and Romania, together with an enterprise value of around $31bn.
Credit Suisse said the size of this deal would allow Vodafone to pay a larger portion in cash, implying the accretion to free cash flow per share could be considerably higher than an acquisition of all of Liberty Global.
An acquisition of only overlapping assets would likely be accretive to free cash flow already in year one, CS said. "It further reduces investor concerns that Vodafone would do a bigger dilutive deal."
RBC Capital Markets said an all-cash transaction "is possible" with part payment in equity from the Ziggo joint venture, the cost to Vodafone would be €20.7bn minus €3.6bn Ziggo equity, so €17.1bn.
Berenberg upgraded Standard Chartered to 'buy' from 'hold' and lifted the price target to 920p from 700p.
It pointed out that StanChart is among the 25% of banks in its coverage trading below tangible book value and within this, the only risk-focused bank offering meaningful growth. It argued that this is unwarranted, hence the upgrade.
Berenberg said StanChart's unique network enables superior growth and risk management versus peers. "This potential has recently been encumbered by actions to overcome legacy issues. With this process now largely complete, relationship managers can focus on growing the core business rather than exiting and renegotiating past business."
As a result, the bank reckons around 5% annual revenue growth is achievable between 2017 and 2020. This reflects higher rates, US dollar weakness and improved growth from the network.
"Standard Chartered’s actions to improve asset quality are complete, in our view. The bank’s loss rates in BOE stress tests are comparable with HSBC in key regions and are below UK banks’ global average. This provides more than just stability. Managers can now focus on growing the core business, and client relationships will suffer less from decisions to end or reprice business. Risk-focused growth is now possible."
Barclays upgraded Countryside Properties to 'overweight' from 'equalweight' and lifted the price target to 379p from 359p on the back of an increase in its valuation for the Partnerships division, as it took a look at UK housebuilders.
"Partnerships, which currently delivers around half of the group’s operating profit, lowers risks in myriad ways: phased viability (which confers the option, but not the obligation, to do future scheme phases); a much higher affordable homes content (which significantly reduces pricing exposure); and lower planning risks (no refusals to date)."
It also said there is an opportunity to roll out the Partnerships division at low capital outlay, adding that the new Midlands division has made a strong start.
Barclays pointed out that Countryside shares have been among the best performers in the sector in the last 12 months.
Housebuilding fundamentals have been impacted by weak consumer confidence, the Brexit debate, November’s 25 basis points rate hike - with the same again expected in the Autumn - and the sluggish second-hand market, it said. Nevertheless, the bank argued that it's still a good time to be a housebuilder.
"Backed by Help to Buy, low mortgage rates and lenders that are open for business, it remains a good time to be buying land (high gross margins still available) and selling houses, apart from the higher price points (largely, though not exclusively, in central London) or where second-hand market reliance is significant (McCarthy & Stone the best example)."