DWS upgraded to Buy
Recommendation
Shares in DWS have fallen 16% since its lacklustre 2014 result. About 3% of that is due to the stock trading without entitlement to its 2014 final dividend of 4.25 cents, but it's still a good bit more than the market's fall of 5%.
SMS Management & Technology has also been weak, falling 15% in the same period (without going ex – it will shed a 7.5 cent dividend on 1 Oct), so it looks like a general antipathy towards IT Services. That in turn may derive from increasing concerns about the local economy, with China and the price of iron ore on the slide. We'll hear more when the company provides an update at its annual meeting in November.
In the meantime the lower share price should give DWS the opportunity to conduct the share buyback it announced in July, and it's slightly unnerving that we haven't yet seen anything in this regard – if management was expecting to release good news at the AGM, it would presumably be buying back shares. With the shares on a price-earnings ratio of about 11 and a free cash flow yield of around 8%, any purchases would comfortably increase earnings per share.
Due to the stock going ex, the disappointing final result and slight question marks over the lack of buyback activity, we're nudging our price guide lower, to Buy below $1.10 (from $1.20) and Sell above $1.60 (from $1.80). However, that still means an upgrade back to Buy. Bear in mind, though, that while we haven't labelled the stock a Speculative Buy, it's certainly at the riskier end of the spectrum – as reflected in our recommended maximum portfolio weighting of 3%. It might also make sense to start below this level, leaving room to top up in case of further weakness. BUY.