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The Expert View: AA, Thomas Cook and Safestore

Our daily roundup of analyst commentary on shares, also including London Stock Exchange and Close Brothers.

by Michelle McGagh on Sep 27, 2017 at 05:00

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Key stats
Market capitalisation£973m
No. of shares out610m
No. of shares floating608m
No. of common shareholdersnot stated
No. of employees7454
Trading volume (10 day avg.)6m
Turnover£940m
Profit before tax£74m
Earnings per share12.15p
Cashflow per share23.32p
Cash per share30.85p

Jefferies’ concern over AA cashflow

Jefferies remains concerned that AA (AAAA) is unable to generate enough cashflow to keep shareholders happy after mixed half-year results from the roadside recovery company.

Analyst Will Kirkness retained his ‘underperform’ recommendation and target price of 150p on the stock, which was trading down 6.2%, or 10.4p, at 158.3p at the time of writing.

Kirkness said the appointment of Expedia co-founder Simon Breakwell as permanent chief executive was ‘welcome’ but the mid-single digit earnings per share downgrades and increased capital expenditure guidance for 2019 was not.

‘First half 2018 earnings were 1% ahead of consensus driven by a good margin performance in insurance with the core roadside business a little light,’ he said.

‘We remain concerned that the business cannot generate sufficient cashflow to satisfy both debt and equity holders.’

Key stats
Market capitalisation£13,000m
No. of shares out347m
No. of shares floating342m
No. of common shareholdersnot stated
No. of employees3748
Trading volume (10 day avg.)1m
Turnover£1,657m
Profit before tax£223m
Earnings per share62.55p
Cashflow per share139.34p
Cash per share328.49p

LSE upping stake in LCH is positive driver, says Barclays

London Stock Exchange (LSE) is increasing its stake in its clearing house subsidiary LCH, which Barclays said is ‘a clear driver of growth’.

Analyst Daniel Garrod reiterated his ‘overweight’ recommendation and increased the target price from £41.40 to £43.20 after LSE increased its stake in LCH to 65.9%. The shares were trading down 0.2%, or 8p, at £37.56 at the time of writing.

‘The LCH division has been a strong value creation story for the LSE group since its 2013 purchase for £467 million,’ he said.

‘At full year 2015…LCH accounted for 25% of LSE’s total income and 16% of operating profits. By the first half of 2017 this had increased to 28% of total income and 23% of operating profits.’

‘We believe this division’s outlook remains strong’.

Key stats
Market capitalisation£1,804m
No. of shares out1,536m
No. of shares floating1,359m
No. of common shareholdersnot stated
No. of employees21940
Trading volume (10 day avg.)3m
Turnover£7,812m
Profit before tax£12m
Earnings per share0.78p
Cashflow per share14.30p
Cash per share115.64p

Thomas Cook gains power in new deal, says Hargreaves

Thomas Cook (TCG) (TCG) seems to be putting difficulties behind it as the travel operator looks to strategic partnerships to boost its position, says Hargreaves Lansdown.

The travel operator reported an 11% rise in bookings and a 1% rise in selling prices year-on-year, as holidaymakers flocked to Greece, Bulgaria and Cyrus.

The big news was a strategic partnership with LMEY Investments, a Swiss-based hotel property development company. As part of the deal Thomas Cook has acquired a 42% stake in German tour operator Aldiana – which it sold in two chunks in 2005 and 2012. LMEY and Thomas Cook will work together to create a hotel investment platform that will be used to develop Thomas Cook own-brand hotels.

At the time of writing, the shares were trading down 1%, or 1.3p, at 119p.

‘Thomas Cook boss Peter Fankhauser is clearly in the mood for a deal as he seeks to revive Thomas Cook’s ailing fortunes,’ said analyst Laith Khalaf.

‘Fankhauser has previously said he wants the travel company to walk in its customers’ flip-flops, and the deal with LMEY will allow Thomas Cook to strengthen its own brand offering where it can exert greater influence over the holiday experience.’

Key stats
Market capitalisation£888m
No. of shares out209m
No. of shares floating204m
No. of common shareholdersnot stated
No. of employees600
Trading volume (10 day avg.)m
Turnover£115m
Profit before tax£87m
Earnings per share41.68p
Cashflow per share41.87p
Cash per share2.59p

Liberum: Safestore new purchase to boost returns

Safestore (SAFE) has acquired Stork Self Storage, which Liberum believes will further enhance returns and ‘further self-help potential’.

Analyst David Brockton retained his ‘buy’ recommendation and increased the target price from 480p to 500p on the stock, which was trading up 4.5%, or 18p, at 419p at the time of writing.

He said the acquisition of Stork Self Storage – which trades as Alligator – was 6% accretive to his earnings per share forecasts ‘and has potential to further enhance returns as rates and occupancy are improved’.

‘The purchase provides more self-help potential to a management team with a proven track record of delivering operational improvements,’ he said.

‘The UK regional portfolio is well located. There is potential to lift both rates and occupancy levels from 68% to a stabilised 80%. An already attractive 7.7% yield could rise to 10%. Safestore continues to deliver positive like-for-like growth, underpinned by its regional diversity, and further enhanced by self-help potential from new and acquired stores.’

Key stats
Market capitalisation£2,163m
No. of shares out152m
No. of shares floating148m
No. of common shareholdersnot stated
No. of employees3000
Trading volume (10 day avg.)m
Turnover£550m
Profit before tax£187m
Earnings per share124.25p
Cashflow per share156.83p
Cash per share567.46p

Close Brothers valuation remains undemanding, says Peel Hunt

A focus on returns instead of loan book volumes stands Close Brothers (CBRO) in good stead and the valuation is not ‘overly demanding’, says Peel Hunt.

Analyst Stuart Duncan retained his ‘hold’ recommendation and target price of £16.00 on the stock following final results that were in line with expectations ‘with the core strength of the bank being supplemented by improved returns from the market-sensitive divisions’.

‘Close trades on a July 2018 price/earnings ratio of 11.6x, while yielding 4.1%, which does not look overly demanding,’ said Duncan.

‘Close consistently delivers solid growth, importantly retaining the focus on returns and not loan book volumes. This places the business in good stead, albeit earnings growth in the short term is not that exciting and we would be relatively cautious about the general credit cycle.’

At the time of writing, the shares were trading down 6%, or 93%, at £14.26.

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  • Thomas Cook Group plc (TCG.L)
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  • Close Brothers Group PLC (CBRO.L)
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  • London Stock Exchange Group PLC (LSE.L)
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  • AA PLC (AAAA.L)
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  • Safestore Holdings PLC (SAFE.L)
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