Australia | Jan 16 2007
By Chris Shaw
Shares in diversified financial services company MFS (MFS) have risen solidly following the company’s successful takeover of travel group S8, but the warrants team at ABN Amro sees further upside as likely.
While the broker’s fundamental experts have retained their $6.00 price target in the medium-term, the Warrants team believes investors should take advantage of any price weakness to lift exposure to the group. The team expects the S8 takeover to prove earnings accretive in the short-term, while group earnings will be further boosted by the recent acquisitions of Saville, Sunleisure and Sunkids, among others.
The broker estimates earnings growth in FY07 will be in the range of 30-40%, supporting its expectation the group’s price to earnings (P/E) ratio will fall from 13.7x in FY07 to around 10x in FY09. This leaves the stock attractively priced compared to the likes of Macquarie Bank (MBL) on 15.5x and Babcock & Brown (BNB) at 17x, without even factoring in the forecast dividend yield of 6.14%.
Additionally, the team notes the stock looks good in terms of technical indicators having recently broken through resistance at $4.60, with the trend suggesting further share price gains. When combined with the expectation of further deal flow over the course of 2007, there remains scope for further upside, the team argues.
Others covering the stock are equally positive, with the FNArena database showing three Buy ratings on the company and an average share price target of $5.63. Shares in MFS today are stronger, as at 12.35pm the stock was up 6c at $5.18.