Broker tips: Ferguson, Hurricane Energy, Segro
Analysts at Canaccord Genuity revised their target price for shares of plumbers' merchant Ferguson higher, highlighting to clients the company's outperformance versus a flat market in the States, plans to de-merge its UK operations and for a full US listing.
Macroeconomic conditions in the US would be the key driver of the shares in 2020, they said.
Yet the company was holding up well thus far, with organic growth in the States of 3.0%, despite a flat underlying market, and with weaker comparables from the third quarter onwards set to help growth rates.
Then there was the spin-off of the UK operations - likely in the first half of 2020 - and the possible conclusion regarding listing structure of the group.
A move to a full US listing was likely to be supportive for the stock as American peers tended to sport higher ratings, the analysts said.
And being wholly US-focused and listed could improve the company's financial performance and medium-term opportunities.
Nonetheless, said Canaccord, "how easily and quickly this can be achieved remains unclear."
Canaccord upped its target for the shares from 6,270.0p to 6,590.0p and kept its recommendation at a 'hold'.
Analysts at Morgan Stanley reiterated their 'overweight' recommendation for shares of Hurricane Energy, labelling the recent drop in the share "overdone".
While disappointing, since the oil explorer's update on its discovery at Warwick West, the stock had fallen by roughly 25%, so that they were now assigning no carrying value for the Greater Warwick area and pricing-in an approximately 20.0% discount to the value of the Early Production System at Lancaster.
Under the assumption of a price of Brent crude oil of $60.0, Morgan Stanley estimated a net asset value for Hurricane of between 54.0-214.0p, depending on the valuation for the contingent resource base in place at Lancaster and Lincoln.
A 54.0p NAV would mean zero value for the contingent resources, with the valuation fully dependent on the 2P resources at the Lancaster EPS (48.0p) and Lincoln (9.0p), they said.
"Whilst the update on Warwick West can be considered disappointing for the overall Greater Warwick Area, we note that both the Warwick wells (Warwick Deep and Warwick West) were targeting prospective resources [...]," they said.
"We believe these have limited bearing 1) on Lincoln 2C resource base of 604 mn bbls (gross) and 2) on the Early Production System at Greater Warwick Area."
The analysts also termed Hurricane's update on the Lancaster EPS the day before as "reassuring", highlighting how it followed a series of positive data points.
"There is nothing in yesterday's update to suggest any negative read-across to Lancaster EPS and any reduction in its valuation."
Analysts at RBC Capital Markets downgraded property investment and development company Segro to 'underperform' on Wednesday following a significant share price increase in the stock.
With Segro's share price up 47% year-to-date, more than in each calendar year since 1994, and consensus for its 12-month rolling average earnings being only 9%, primarily driven by an 8% year-on-year growth in earnings per share forecast for 2020, RBC said the company's current price/earnings-to-growth ratio of 4.2 times was well above its historical monthly average of 2.9 times PEG since 2014.
RBC, which also lowered its price target on the firm from 750p to 725p, said it considers the 35 times profit-earnings multiple that Segro shares currently trade on as being "very demanding" of the group's growth prospects.
While the Canadian bank did note the 8% consensus earnings per share growth for 2020 implied a price/earnings-to-growth ratio of 4.2 times, significantly above the 2.9 times monthly average seen since 2014, analysts stated that EPS surprises had been "limited" over that period. Looking forward, RBC added that growth drivers appeared "more limited".
RBC also said it saw the potential for bigger positive surprises decreasing as the economic cycle goes on and Segro's scale increases.
"With 14% potential downside to a 3% lower EVA-based price target of 725p, we downgrade our rating to 'underperform'," said RBC.