Broker tips: CCH, John Laing Group, Johnson Matthey

 Source: ShareCast   |   Publish date: Fri, 22 Sep 2017, 05:01 AM   |    >> Read article in News website

(ShareCast News) - Analysts at Morgan Stanley revised their target price for CCH shares sharply higher, telling clients the improvement in the Coca Cola bottler's fundamental drivers looked "sustainable", while adding that its strategic optionality constituted an 'upside' risk for the shares.
"Whilst we continue to believe the soft drinks industry faces structural challenges, we note that improving macro and a healthier consumer outlook across CCH markets should support a sustainable improvement in top-line growth," they said.

Year-to-date the stock was up by 43% as management forged ahead on reaching its target for 11% EBIT margins by fiscal year-end 2020, leading to upgrades from the analyst consensus which in turn had driven a re-rating in the company's valuation multiples. Tailwinds from FX movements - given that the company earns euros but reports in Sterling - were also cited as a factor behind the recent share price appreciation.

In terms of strategic optionality, the analysts noted reports that the outfit was among the bidders for Coca Cola Beverages Africa.

Such a transaction would be double digit accretive for the firm's earnings per share. It would also speed-up its growth profile over the medium-term and top line growth, Morgan Stanley said.

Nonetheless, and on a more cautionary note, they added: "We take no view on the outcome of CCH's rumoured bid for CCBA or the specific timing, but highlight this as a potential upside risk to our price target."

There was also potential for a move to 'optimise' the balance sheet, resulting in cash returns and special dividends which had now been incorporated into its 'base' and 'bull' cases.

On the back of all of the above, the broker raised its target from 1,800p to 2,400p and lifted its recommendation from 'underweight' to 'equalweight'.

"Despite ~5% downside to our price target,given balanced risk-reward and uncertainty surrounding the potential acquisition of CCBA (CCH is under levered and managementhas not ruled out larger M&A)."

John Laing's growing pool of public-private partnerships and renewable energy investment opportunities should allow the company to grow 12% a year through to 2019, said HSBC as it restarted coverage of the stock with a 'buy' recommendation.

HSBC said Laing's investments opportunities are in low risk territories in Europe, North America and Australasia, "where there is political support for PPP and a rising weight of secondary investment funds that exceeds the flow of finished projects".

Opportunities in these territories are expected to structurally rise in both PPP and renewables, which the group can access through the network of offices, most recently expanded in the US.

"We see PPP investment as the most expedient means of realising infrastructure demand," while HSBC's climate change strategist, Ashim Paun, has set out expectations for the renewable energy provision to increase by multiples of up to 3.3 times current levels by 2030 in the group's key markets.

Analyst set a 340p share price target that projects a rise to a 20% premium to net asset value to reflect the growth prospects in both investment pools and the group's advantageous position and track record for realising surpluses.

After Johnson Matthey set out financial guidance at a capital markets day focused on growth opportunities ahead, analysts at Deutsche Bank and Credit Suisse were among those to hike their expectations for the chemicals group.

As well as highlighted its ability to grow earnings ahead of the market in the face of the changing nature of the global automotive industry, the announcement that caught investors and analysts' eye was a big investment in its battery material technology business and launch into battery cathode materials with a proprietary cathode material 'eLNO'.

"We acknowledge the earnings opportunity is still 4-5 years away. However, launching a viable cathode materials technology (potentially more cost efficient than NMC [nickel manganese cobalt], positive early feedback from customers) should improve investor sentiment towards JMAT," said Credit Suisse, ascribing zero value for this business in our valuation.

Credit Suisse increase its earnings forecasts by an average 1%, increase its target price to 3,700p and retain its 'outperform' rating.

Deutsche Bank, which reiterated its 'buy' with a target price of 3,600p, was impressed with management predictions that autocatalysts will grow for at least the next ten years driven by market share gains and growth in Asia, more than offsetting the decline in diesel market share in Europe and increasing electrification.

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