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The Expert View: AO World, Rightmove and Genel

Our daily roundup of analyst commentary on shares, also including VP and GB Group.

by Michelle McGagh on Jun 07, 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£595m
No. of shares out459m
No. of shares floating208m
No. of common shareholdersnot stated
No. of employees2101
Trading volume (10 day avg.)1m
Turnover£599m
Profit before tax£-6m
Earnings per share-1.43p
Cashflow per share-0.31p
Cash per share7.93p

Hargreaves: AO faces continued headwinds

Online white goods retailer AO World (AO) may be gaining market share but Hargreaves Lansdown said the headwinds it faces won’t ease anytime soon.

Full-year results showed adjusted earnings jumped 41.7% to £24.4 million but losses in Europe rose by 25.5% to £26.5 million. At the time of writing the shares were down 5.9% at 136p.

Analyst George Salmon said despite making market share gains in the UK and Europe the ‘over-riding feeling of AO World’s results is “more of the same’’. Unfortunately that means there’s little sign of the current headwinds facing the group easing anytime soon’.

With economic uncertainty in the UK, consumers are expected to hold off buying bigger ticket items and coupled with rising costs and a weaker pound, AO finds itself under ‘more pressure…than at the time of its float in 2014’, said Salmon.

‘The share price has only really moved one way in the last couple of years, and the stock is now set to fall off the FTSE 250 roster,’ he said.

Key stats
Market capitalisation£3,924m
No. of shares out93m
No. of shares floating91m
No. of common shareholdersnot stated
No. of employees469
Trading volume (10 day avg.)m
Turnover£220m
Profit before tax£130m
Earnings per share136.41p
Cashflow per share138.11p
Cash per share19.07p

Take profits from Rightmove, says Shore Capital

Shore Capital has downgraded Rightmove (RMV) and urged investors to take profits.

Analyst Roddy Davidson downgraded his recommendation from ‘buy’ to ‘hold’ and said investors should take profits or switch into ZPG, owner of Zoopla, which ‘offers superior earnings per share and dividend per share growth potential’.

Shares in Rightmove were trading down 1.5%, or 68p, at £42.46 at the time of writing, having risen 14% since November.

Davidson said the shares had outperformed Shore Capital’s media sector by 10% over a three-month view.

‘We believe this progress is justified in light of the strong performance and pleasing momentum evident in the group’s full-year 2016 results and given the strength of its business model and competitive position,’ he said.

‘That said, its stock valuation is now trading within 5% of our assessment of fair value. On this basis we have decided to return our recommendation from “buy” to “hold” and suggest that investors take profits and/or switch into ZPG.’

Key stats
Market capitalisation£358m
No. of shares out40m
No. of shares floating17m
No. of common shareholdersnot stated
No. of employees1843
Trading volume (10 day avg.)m
Turnover£209m
Profit before tax£22m
Earnings per share54.51p
Cashflow per share126.77p
Cash per share11.25p

Growth potential at VP, says Peel Hunt

Peel Hunt is predicting a ‘modest rerating’ at equipment rental specialist VP (VP) after a strong finish to the year.

The company, which comprises six specialist rental divisions, reported final results ahead of expectation, with dividend growth up 17% to 22p and 16% return on capital employed despite investment.

Analyst Andrew Nussey retained his ‘add’ recommendation and increased the target price from 850p to 900p on the stock, which was trading up 4.7%, or 40p, at 890p at the time of writing.

‘Key driver to outperformance looks to be Hire Station following an excellent year,’ he said. ‘Outlook remains confident. We increased our April 2018 earnings per share by 5%. Shares trading on 11.2x April 2018 revised earnings per share and a yield of 2.8%. VP remains well positioned and we continue to see scope for modest rerating.’

Key stats
Market capitalisation£502m
No. of shares out558m
No. of shares floating129m
No. of common shareholdersnot stated
No. of employees137
Trading volume (10 day avg.)4m
Turnover148m USD
Profit before tax-968m USD
Earnings per share-3.48 USD
Cashflow per share-3.11 USD
Cash per share1.13 USD

Case for Genel Energy remains weak, says Jefferies

Expectation of a new Turkish partner has boosted the share price of Genel Energy (GENL) but Jefferies believes the investment case is still weak.

Analyst Mark Wilson retained his ‘underperform’ recommendation and target price of 37p on the stock, which was trading up 3.6%, or 3p, at 90p at the time of writing.

‘Direct Turkish investment into the Miran gas project is, in our view, the main expectation behind the stock move and while the on-paper value case can be argued the fundamental investment case remains weak,’ he said.

He added that the free cashflow at the firm was not sufficient to ‘both refinance debt and invest in growth – and it is the prospect of growth that drives exploration and production stocks fundamentally’.

Key stats
Market capitalisation£574m
No. of shares out152m
No. of shares floating139m
No. of common shareholdersnot stated
No. of employees542
Trading volume (10 day avg.)1m
Turnover£73m
Profit before tax£9m
Earnings per share7.22p
Cashflow per share10.27p
Cash per share10.02p

Berenberg: GB Group can justify its high multiple

Identity data intelligence company GB Group (GBGP) has reported another strong set of full year results, which Berenberg says justifies the high valuation.

Analyst Edward James retained his ‘buy’ recommendation and increased the target price from 440p to 460p after full-year 2017 results showed revenues increased 19%, marking the fourth consecutive year of double-digit organic growth.

The shares were trading down 4%, or 16p, at 389p at the time of writing.

‘GB trades on 33x 2018 price/earnings for a 26% 2018-20 earnings per share compound annual growth rate, on our base case numbers,’ he said.

‘The multiple is high, but we believe it is justified by GB’s strong organic growth outlook and large roll-up opportunity.’

James added that he expected the company to continue to make acquisitions ‘adding technological capabilities, geographical breadth and new clients’.

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  • AO World PLC (AO.L)
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  • Rightmove PLC (RMV.L)
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  • VP PLC (VP.L)
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  • Genel Energy PLC (GENL.L)
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  • GB Group PLC (GBGP.L)
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