Out performer can further improve

Jun 28 2010 by Andrew Miller, The Journal

Aggreko: We are reinstating active coverage on Aggreko with a buy and a fair value estimate of 1,364p. The shares have seen multiple upgrades over the last 12 months and have outperformed the index by 87%.

Nevertheless, with relentless structural demand for temporary power set to continue and some evidence of stabilisation in the local business, we see further upside for the shares.

The shares should also find support in the record high order book reported at Q1, positive FX tailwinds, given 70% of revenues are derived in USD and strong balance sheet position.

We have calculated our fair value estimate by applying the group’s long-term historical price to earnings ratio (P/E) to 2011 earnings consensus earnings.

Halfords: We are retaining our outperform recommendation on Halfords and raising our fair value to 685p. We continue to believe that Halfords’ core business offers reliable earnings growth.

Cycling is a trend that is set to continue to grow and, with the average age and the total size of the UK’s car population also set to increase, Halfords looks to be in a good position.

However, the acquisition of Nationwide Autocentres changes the growth prospects of the group considerably, with the management now forecasting medium-term growth of 15%.

We believe that this is achievable and should change the way we look at Halfords shares.

With this in mind, we have changed our valuation methodology to a mix of DCF and peer group valuation to better incorporate the group’s mid-teens growth profile into our fair value.

Near term, we believe that there is further opportunity for the company to surprise on the upside, particularly on margins, where the market is expecting no change for the rest of this year.

Prudential: We are reiterating our outperform recommendation on Prudential, following the news that the proposed rights issue and takeover of AIA will not take place.

We think that the underlying business is strong, and that the Asian growth opportunity remains, despite the failed bid. Although the sunk costs are unfortunate, we are not that concerned with the fate of management.

A break up of the group is possible, but we think the current formation of the group is a good one, and do not anticipate this in the short term.

Andrew Miller, regional office manager of Barclays Wealth in Newcastle