Broker tips: G4S, BP, Shell, Ashtead
Security services and solutions outsourcer G4S is approaching a trough in its growth profile thanks to its leadership position in the cash handling market, supported by quicker growth in emerging markets, analysts at UBS said.
In fact, excluding one-off installation work, growth had been relatively stable at between 2% and 4%, and as it began delivering on its pipeline of new cash solutions that would accelerate to between 5% and 6% over the second half of 2018, with an inflection point being reached during the second quarter, UBS said.
"Our detailed review indicates G4S's solution is more developed than those of its peers (bank agnostic). The growth should be a net positive for margins, given the high-margin service component: we forecast 15bps/10bps of margin expansion in 2018/19," Bilal Aziz, Rory McKenzie and Denis Moreau said in a research note sent to clients.
There was also upside to be had from consolidation in its industry given the structural trend towards lower rates of cash usage.
Analysts at Morgan Stanley revised their price targets for a broad swathe of the European oil majors higher, despite 'peak oil demand' concerns in the marketplace, naming BP and Shell as their 'top picks' in the process.
Hence, they revised their targets for the pair from 595p and 2930p to 645p and 3040p, respectively.
"Coinciding with an improvement in oil market fundamentals and a rally in prices, the impact on FCFcould be dramatic," the broker said.
Their output was set to continue growing at roughly a 3.5% pace each year out to 2020, as new projects continued to ramp-up, while downstream earnings - which had doubled since 2014 - were seen rising further.
In parallel, cuts to capital expenditures and operating expenditures of approximately 40% and 20%, respectively, since 2014, were also likely to stick, they said.
Neither was there much cost inflation on the horizon and debt reduction would continue to be a priority.
Analysts at JP Morgan Cazenove revised their target price for Ashtead Group' s shares from 2,400p to 2,450p and reiterated their 'overweight' rating on the same, highlighting the 'rare' opportunity for the company, which was already a market leader in the US, to continue growing its market share in that North American market.
Yes, share price gains in the wake of a "strong" set of second-quarter results had been offset by news that several members of the group's senior management team had decided to sell their shares, they conceded.
However, the analysts said that as the dust had settled after that "surprising development", they had decided to revisit their investment thesis and model and their conviction was unchanged.
Ashtead remained a "top pick", JP Morgan said, explaining that its potential for growth and cash flow dynamics were undervalued and pointing to 10 reasons why they believed consensus estimates were too low.
The company's end markets had seen a significant recovery since the heavy downturns experienced in 2008-2009 and US non-residential construction was set to grow at a GDP-like rate.
More importantly, rental penetration, which had increased from 20% to 55% across the construction sector between 2000 and 2016, was believed to still be on the up and would provide further tailwind for all rental equipment providers, the investment bank said.
At last count, Ashtead was the second largest player in its segment within the US, sporting a market share of roughly 7%, the analysts estimated.