Broker tips: Kier, Catlin, Spectris

12th Nov 2010 13:23

Prospects in the medium term look good for Kier Group, says Panmure Gordon, but closer issues in housing are likely to limit share price growth. The housebuilder and contractor reported a good start to the current year "broadly in-line" with management expectations.Healthy order books, strong cash flow and good margins continues to benefit its Construction division. "Its position on a number of frameworks provides good revenue visibility; currently all of estimated 2011 revenue is secure, as is 51% of 2012", said analyst Andy Brown.While Support Services is in-line with "enhanced medium-term opportunities" after the spending review, Housing expects a "potential hiatus in social housing spend, as the sector comes to terms with new funding mechanisms, while private housing has made a slow start", Brown says.Panmure's forecasts have been retained with 2011 pre-tax profit (PTP) estimated to be £60m, earnings per share (EPS) to be 117p, while market consensus sees PTP being £59m and EPS 114p.The broker's valuation sees a price earnings ratio of 9.8 for the 2010 calendar year rising to 10.5, which is in line with the sector average. "The dividend yield is an attractive 5.1%"."It is now appropriate to lock in some profit", says Brown, downgrading from a 'buy' to 'hold', with a target price of 1,160p.Despite a strong third quarter report from Spectris, which saw higher sales in all business division and regions, KBC Peel Hunt has retained its 'hold' rating for the stock, though it has bumped up its target price.The instrumentation and controls company anticipate pre-tax profits for the year moderately above the high end of current forecasts. "We expect to upgrade by circa 15% to circa £117m ... versus original consensus of £106m", says analyst Dominic Convey. Peel Hunt's profit projection equates to earnings per share of 77p."There was a strong recovery in the Test and Measurement segment, where sales increased by 20% compared with the relatively weak prior year period", said Convey.Sales in the US and Asia Pacific were up by 32% and 21% respectively, while European sales have recovered and increased by 7% compared with the same period previously.Net debt at 31 October was £105m, including £42 of acquisitions.The broker maintains its 'hold, with an upgraded target price of 1,200p from 1,100p. Broker finnCap retains a 'buy' rating for Catlin after the underwriter saw gross premiums rise by 9% in the third quarter.Gross premiums were ahead with Bermuda, the US and international markets picking up the slack as London business stagnated. The setting up of the Catlin Re Switzerland unit in January 2011 will give the group access to business it would not have seen otherwise, the broker said."With London not growing there was 29% growth in gross premiums from Bermuda, US and International", said analyst Charles Coyne.The broker said the year to date investment return of 2.9% achieved by Catlin was reasonable, with little risk element to Catlin's assets. "This is a major turnaround from 2008 when there was a surfeit of esoteric assets", says the broker. "There was a small FX [foreign exchange] gain in the period after a $49m loss last year."With the group trading at 360.6p as of Friday afternoon and at a discount to net assets of around 17%, the broker reiterates a 'buy' and a target price of 420p, with a dividend yield of 7.8% highlighted as a major attraction.