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The Expert View: ABF, Dixons Carphone and Boohoo

Our daily roundup of analyst commentary on shares, also including Kier and Stagecoach.

by Michelle McGagh on Jun 29, 2017 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£23,513m
No. of shares out792m
No. of shares floating346m
No. of common shareholdersnot stated
No. of employees129916
Trading volume (10 day avg.)1m
Profit before tax£818m
Earnings per share103.41p
Cashflow per share165.23p
Cash per share70.11p

ABF poised for re-rating, says Jefferies

Primark-owner Associated British Foods (ABF) is poised for multiple expansion, according to Jefferies. Analyst James Grzinic retained his ‘buy’ recommendation and target price of £35.00 on the stock ahead of third quarter results on 6 July. The shares were trading up 0.7%, or 21p, at £29.79 at the time of writing.

‘ABF’s strong outperformance of recent months should be underpinned by a return to positive like-for-likes at Primark in Q3,’ he said.

‘This is a critical step in the rerating process. We still see ample scope for further multiples expansion, with the potential for Primark’s margin rebuild the critical catalyst in H2 2017.’

He added that the company showed ‘strong growth, free cashflow, and [is] clearly underleveraged’.

Key stats
Market capitalisation£3,385m
No. of shares out1,153m
No. of shares floating938m
No. of common shareholdersnot stated
No. of employees41847
Trading volume (10 day avg.)3m
Profit before tax£179m
Earnings per share15.12p
Cashflow per share29.97p
Cash per share20.24p

Hargreaves: Dixons Carphone facing a ‘triple threat’

Hargreaves Lansdown does not buy into Dixons Carphone’s (DC) optimistic outlook. In analyst George Salmon’s opinion, the electrical retailer faces a ‘triple threat’.

Shares rose 1.8% after fourth quarter like-for-like sales at the electrical retailer were up 2%. The retailer said it believes the UK consumer environment isn’t all doom and gloom. At the time of writing the shares were trading down 0.8%, or 2.2p, at 293p.

Salmon said it was ‘reassuring’ to hear that Dixons Carphone was positive after damaging profit warnings from DFS and gloomy retail figures.

‘Nonetheless, a peek at the stocks’ valuation shows the longer-term sentiment towards the group,’ he said. ‘The shares are currently trading just 9x expected earnings; only two years ago they were changing hands for almost twice this multiple.’

Salmon acknowledges that the retailer enjoys a unique position on the UK high street. Nevertheless, it faces the triple threat of ‘Amazon’s relentless expansion, sterling’s weakness, and a squeezed UK consumer’.

Key stats
Market capitalisation£2,623m
No. of shares out1,123m
No. of shares floating688m
No. of common shareholdersnot stated
No. of employees1301
Trading volume (10 day avg.)12m
Profit before tax£24m
Earnings per share2.16p
Cashflow per share2.59p
Cash per share6.26p

Don’t underestimate Boohoo, says Peel Hunt

Peel Hunt believes sales and profit forecasts for online fashion retailer Boohoo (BOO) could ultimately fall short.

Analyst John Stevenson retained his ‘buy’ recommendation and target price of 300p on the stock, which was trading down 1.2%, or 3p, at 233p at the time of writing.

‘A visit from Boohoo’s management team gave confidence in delivering the longer-term aspirations of the business,’ he said.

‘Boohoo is shaping up to become a multi-brand, own label fashion business, and sees potential to add additional brands in the future.

‘With the UK successfully re-platformed and warehouse distribution plans in progress, we continue to believe that short-term sales and profit forecasts fall some way short of the momentum in the business.’

Key stats
Market capitalisation£1,211m
No. of shares out97m
No. of shares floating92m
No. of common shareholdersnot stated
No. of employees20685
Trading volume (10 day avg.)m
Profit before tax£-25m
Earnings per share-25.74p
Cashflow per share27.21p
Cash per share213.18p

Numis upgrades ‘transformed’ Kier Group

Numis has upgraded Kier Group (KIE) after a transformative period that should pave the way for organic growth at the property company.

Analyst Howard Seymour upgraded his recommendation from ‘add’ to ‘buy’, with a target price of £15.10 on the stock. The change was made in light of Kier’s full-year update, which provided a positive picture across all divisions.

At the time of writing, the stock was trading up 3%, or 37p, at £12.55.

‘After what has been a transformational period of acquisitions and portfolio simplification which is now in place, we see management comments as signalling that we should look to a period of sustained organic growth across the group as benefits of strong market positions and good net investment in property and residential bear fruit,’ he said.

Key stats
Market capitalisation£1,097m
No. of shares out574m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees40000
Trading volume (10 day avg.)2m
Profit before tax£98m
Earnings per share17.00p
Cashflow per share42.90p
Cash per share66.58p

Risks not priced in at Stagecoach, says Liberum

As Stagecoach (SGC) misses analysts’ profit forecasts, Liberum said the risks facing the bus operator are still not fully priced in.

Analyst Gerald Khoo retained his ‘sell’ recommendation and target price of 185p on the stock, which had slumped 9%, or 19p, to 184p at the time of writing.

Full-year results were mixed, marked by a 5-6% miss at the profit-before-tax level.

‘The fall in profits was largely anticipated, given the slowdown seen across the rail industry,’ he said. ‘Exceptional charges were significant, and mainly related to the East Coast rail franchise, including an onerous contract provision of £84 million.’

He added that the multiples the shares trade at ‘do not reflect the complexities and discontinuities with UK rail franchises’ and the target price indicates 9% downside.

‘We accept the dividend yield is supportive, but although the cover by earnings is reasonable it is not covered by free cashflow,’ he said.

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  • Dixons Carphone PLC (DC.L)
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  • Boohoo.Com PLC (BOOH.L)
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  • Kier Group PLC (KIE.L)
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  • Associated British Foods PLC (ABF.L)
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  • Stagecoach Group PLC (SGC.L)
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