| CATEGORY: BROKER RECOMMENDATIONS SECTOR: LIFE INSURANCE |
Broker tips: Old Mutual, Home Retail, Connaught |
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Fri 12 Mar 2010
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LONDON (SHARECAST) - The strategy update from South African insurer Old Mutual has left Nomura Securities largely unmoved.
Old Mutual ‘remains a predominantly South African bancassurer combined with Skandia's Northern European presence and a US asset management unit,’ opines Nomura analyst Nick Holmes. ‘The only real news was of the intended partial IPO [flotation] of US asset management at some point in the next three years,’ Holmes suggested.
The strategy update left two big questions unanswered in Nomura’s view. First, what is the future of Nedbank, which provides 40% of the company’s earnings? Second, what is the strategic rationale for the European operations given that they do not, in Nomura’s view, provide any ‘meaningful synergies’ with the South African business.
‘We think that the most compelling part of the strategy update lay with Old mutual's plans to expand its South African life insurance expertise throughout Africa,’ Holmes concludes.
The stock has had a good run of late and is currently trading above Nomura’s target price of 108p.
Homebase and Argos owner Home Retail Group ‘posted a mixed but incrementally positive fourth quarter update’ earlier this week, according to Numis Securities, but the broker thinks the group will be ‘challenged to make progress in 2010/11.’
Like for like sales (LFL) figures from Argos were weak but the performance of Homebase compensated for this.
‘The LFL performance of Argos should be viewed in the context of a sequential quarterly comp [comparative] c.6%pts tougher, a 3%pt impact from a later catalogue release, and a c.3%pt hit from the snow,’ the broker notes.
‘Homebase LFLs surprised positively as the retailer managed to clear a delivery backlog (c.+5/6%pts in a low volume quarter) despite the in-store impact of the snow (c.-3%pts),’ Numis added.
The broker has kept its ‘hold’ recommendation on the stock and 260p target price. ‘The group surprised positively by guiding to a YE [year end] net funds position of £410m (previously £385m). However, with timing reversals in working cap, higher capex [capital expenditure] and newly agreed pension contributions we now expect net funds to be broadly flat to Feb-11F [fiscal year to February 2011],’ Numis concluded.
Social housing firm Connaught has denied press speculation about a bid but Panmure Gordon is not surprised at the bid speculation as the ‘business is attractive’.
The shares have been under a cloud since the departure of chief executive officer (CEO) Mark Davies, who left at the end of January, with concerns over contracts adding to the gloom.
‘Connaught management this week gave a presentation to the Panmure Gordon Sales team. We felt it to be robust. It confirmed our view that the departure of the CEO does not impact strategy, that the concerns over the Norwich Contract had been overdone,’ the broker said.
The broker has retained its ‘buy’ recommendation and 470p target price.
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