Professional analysts have more time, more data, and better access to companies than most private investors. As such, the wisdom of the City crowd is worth paying attention to, because, at the end of the day, you’re either going with the pros or going against them when you invest.
Royal Bank of Scotland
Bull and bear analysts were dividend 50:50 on RBS a year ago. Today, there are two or three bears for every bull.
Last week, RBS delivered first-quarter results, with operating profit before tax of £1.6bn, double that of the equivalent quarter last year, and smashing expectations. The market sent the shares up over 8% on the day to 332p.
However, bearish analysts were less impressed. Citigroup and Berenberg reiterated their sell recommendations, and a suspicion that this was a one-off quarter also extended to cautious neutral analysts.
Investec wasn’t getting “too carried away”, noting that only £0.1bn of a £2bn restructuring charge for 2014 was taken in the quarter, and describing an impressively low £0.1bn loss in RBS’s internal bad bank as a “temporary aberration”. Analysts at Deutsche similarly highlighted one-off boosts. Even RBS’s chief executive joined in, warning on the conference call not to extrapolate too much from the results.
Only 15% of analysts rated Tesco a sell one year ago. Today it’s 50%, with the rest divided equally between neutral and buy.
Tesco is another company where recent results — full-year results released last month, in the supermarket’s case — have failed to shift the naysayers. The market, too, has barely batted an eyelid, with the shares currently at the same 286p price they were trading at ahead of the results.
Analysts at Sanford Bernstein believe food retail is developing towards a value/quality duopoly, and bemoan the fact that: “Tesco still wants to be everything to everybody”. Meanwhile, arch-bears Espirato Santo commented: “Approximately three years into Tesco’s restructuring, it has produced the worst like-for-likes and margin performance of at least the last decade. We think this will get worse near term”. It seems one of Tesco’s house brokers agrees. Barclays’ response to the results was: “We again trim earnings per share estimates”.
G4S, the world’s biggest security firm, has been one of the most accident- and scandal-prone blue chips of recent years. It’s been one thing after another, since the company’s embarrassing blunder of finding itself unable to supply enough staff for a contract to provide security for the London Olympics.
Under a new chief executive, G4S is in the midst of a “corporate transformation programme” to turn around its reputation and profits. However, the number of bearish analysts on the company has increased threefold over the last six months. Deutsche, for example, last month downgraded G4S to ‘sell’, saying they “do not see significant ‘hidden value’ in G4S to warrant its current valuation”.
A first-quarter update from the company this week had the novel merit of not containing any nasty shocks, but performance and progress were as expected, and I haven’t seen any analysts rushing to change their position on the stock. The shares, at 245p, remain in the middle of their three-month trading range.
G A Chester does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco.