Morningstar analysts have slightly reduced their valuation of ICAP shares and increased their valuation of SABMiller; they also expect to make upward adjustments to their Compass valuation and to maintain their United Utilies valuation.
Compass
Narrow moat food-service operator Compass Group (CPG) reported solid fiscal year-end results that continue to support our belief in the resilience of the company’s well-diversified portfolio of operations. After incorporating full-year results into our discounted cash flow model, we will probably increase our fair value estimate to reflect cash earned since our last update.
ICAP
We are slightly reducing our fair value estimate for ICAP (IAP) to 421p from 435p per share, which correlates to 12.8 times price/adjusted forward earnings and a forward enterprise value/EBITDA multiple of 8.6 times. The decrease in our fair value estimate came from recent poor results and a reduction in our long-run voice broking segment operating margin forecast partially offset by the time value of money.
SABMiller
We are raising our fair value estimate for SABMiller (SAB) to £35 from £32, primarily following the recent sharp decline in the GBP/USD exchange rate and the time value of money effect since our last update. The announcement that SAB is to form a joint venture with the Coca-Cola Company and Gutsche Family Investments to distribute soft drinks bottler in Africa also contributes a modest amount to our valuation hike. We believe there are several opportunities for upside to earnings power in the medium-to-long term as a result of the deal, and we think positively of the move, as the greater volume could enhance SABMiller's wide economic moat.
United Utilities
United Utilities Group (UU.) reported £343.1 million in operating profit for the first half of its fiscal year ending September 2014, a slight increase from £339.8 million in the same year-ago period. We are maintaining our 650p per share fair value estimate. Management’s interim dividend of 12.56p per share is in line with management’s commitment to raise the annual dividend by the RPI (retail prices index, measuring UK inflation) change plus 2%.