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The Expert View: Associated British Foods, HSS and IFG

Our daily roundup of analyst commentary on shares, also including Diploma and Medica.

by Daniel Grote on Aug 31, 2017 at 05:00

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Key stats
Market capitalisation£26,102m
No. of shares out792m
No. of shares floating346m
No. of common shareholdersnot stated
No. of employees129916
Trading volume (10 day avg.)1m
Turnover£13,399m
Profit before tax£818m
Earnings per share103.41p
Cashflow per share165.23p
Cash per share70.11p

Strong euro bodes well for ABF

Jefferies has upped its price target on Associated British Foods (ABF), arguing the Primark owner is a ‘clear beneficiary’ of the strong euro.

Analyst James Grzinic retained his ‘buy’ rating on the stock and raised his price target from £35 to £36. The shares rose 2.4% to £32.94 yesterday.

‘The negative Primark margin commentary of September 2016 should look like a distant memory when ABF reports its pre-finals interim management statement,’ he said.

Grzinic is expecting ABF to confirm it is on track for his expectations of 21% earnings growth for 2017, and predicted a bright outlook for 2018.

‘At Primark, we are of the view that margins already toughed in the first half of the year, and there is a good chance of ABF beating guidance for a second half decline of 1.7%,’ he said.

‘In addition, we recently wrote at length about Primark’s improving US prospects.’

Key stats
Market capitalisation£33m
No. of shares out69m
No. of shares floating13m
No. of common shareholdersnot stated
No. of employees21
Trading volume (10 day avg.)m
Turnover£9m
Profit before tax£1m
Earnings per share0.72p
Cashflow per share0.73p
Cash per share0.26p

Peel Hunt cuts targets on disappointing HSS

Peel Hunt has cut its target price on HSS Hire (HSS) after the tool hire company delivered more disappointment to shareholders.

Analyst Andrew Nussey cut his price target to 40p from 65p, with a ‘hold’ rating, as the shares fell 11.7% to 49p on first half losses and a warning of lower sales growth.

‘Slower than expected third quarter revenue momentum leads to a materially reduced earnings expectation,’ he said.

‘We now expect a December 2017 loss before tax of £14 million and a December 2018 loss of £7 million.

‘The shares are trading on a discount to net asset value (largely intangible) but to materially outperform, the shares need to sustain both organic rental revenue growth and a sustained reduction in leverage.’

Key stats
Market capitalisation£193m
No. of shares out125m
No. of shares floating73m
No. of common shareholdersnot stated
No. of employees1089
Trading volume (10 day avg.)m
Turnover121m EUR
Profit before tax6m EUR
Earnings per share0.05 EUR
Cashflow per share0.13 EUR
Cash per share0.34 EUR

IFG a ‘buy’ despite uncertain costs

Shore Capital is sticking with its ‘buy’ rating on IFG Group (IFP), believing the financial services group is operating well despite the ‘inconsiderable noise’ surrounding its costs warning last month.

The group warned in July that it would take a hit from an HM Revenue & Customs charge over an investment held by some clients, together with an acceleration of restricting costs.

Shore Capital analyst Paul McGinnis said despite these costs, Sipp provider James Hay and wealth management group Saunderson House ‘actually traded well in the first half’.

‘We continue to think that the most instructive way to value IFG is using a sum of parts.

Our sum of parts is potentially reduced by the post-tax value of the elevated exceptionals (after any recovery from insurance) but would still be close to 200p, and, as such, we reiterate our “buy” recommendation.’

The shares were trading at 152.3p yesterday.

Key stats
Market capitalisation£1,242m
No. of shares out113m
No. of shares floating111m
No. of common shareholdersnot stated
No. of employees1600
Trading volume (10 day avg.)m
Turnover£383m
Profit before tax£38m
Earnings per share33.88p
Cashflow per share46.79p
Cash per share18.19p

Numis raises rating on bullish Diploma

Numis has raised its rating on Diploma (DPLM) after a bullish trading update from the industrial machinery group.

Julian Cater upped his rating to ‘add’ from ‘hold’, with an £11.90 target price on the shares, which jumped 7.7% to £11.07 yesterday.

‘Diploma’s trading update indicates that it is on track to report results for the full year in line with expectations,’ he said.

‘We make no change to our forecasts, but believe that revenue growth is tracking a little ahead of our estimates.’

He pointed to management expectations of 17% revenue growth for the year, ahead of Numis’ 15% assumption, with organic grow providing 6%, acquisitions 2% and foreign exchange movements 9%.

Key stats
Market capitalisation£247m
No. of shares out111m
No. of shares floating102m
No. of common shareholdersnot stated
No. of employees70
Trading volume (10 day avg.)m
Turnover£29m
Profit before tax£3m
Earnings per share2.99p
Cashflow per share4.80p
Cash per share4.24p

‘Buy’ Medica on strong demand

Berenberg has initiated coverage of Medica (MGPM) with a ‘buy’ rating, pointing to the company’s 50% share of the growing teleradiology market.

Analyst Charles Weston placed a 260p price target on the shares, which jumped 6.4% to 224p yesterday.

‘With [approximately] 50% of the UK teleradiology market and a reputation as the premium quality provider, Medica is able to charge 5% to 10% more than its peers,’ he said.

He added there was strong demand for its services, with the National Health Service in particular struggling with capacity constraints.

‘The UK has fewer radiologists than other developed nations, resulting in increasing diagnostic waiting lists – 99% of NHS radiology departments were unable to meet their reporting requirements in 2015.’

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  • Associated British Foods PLC (ABF.L)
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  • HSS Hire Group PLC (HSS.L)
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  • IFG Group PLC (IFP.L)
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  • Diploma PLC (DPLM.L)
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  • Medica Group PLC (MGPM.L)
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