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The Expert View: Auto Trader, Merlin and Ashtead

Our daily roundup of analyst commentary on shares, also including Joules and RWS Holdings.

by Michelle McGagh on Jun 08, 2018 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£3,602m
No. of shares out948m
No. of shares floating918m
No. of common shareholdersnot stated
No. of employees824
Trading volume (10 day avg.)5m
Turnover£311m
Profit before tax£212m
Earnings per share15.60p
Cashflow per share16.40p
Cash per share0.82p

Auto Trader on road to success, says Hargreaves

Auto Trader (AUTO) has proved robust in the face of weakness in the used car market. Looking ahead, Hargreaves Lansdown expects this momentum will continue.

The car classifieds company grew revenues by 7% and profits by 10% over the year to the end of March, with earnings and dividends jumping 15%.

Steve Clayton, manager of the HL Select UK Growth Shares fund which has a 3.2% position in the company, said there was reason to be bullish on the stock following the results.

Investors have been polarised in their views on Auto Trader in recent months. The bears argues the weak new car market will ultimately drag Auto Trader’s earnings down, whilst the bulls point to the company’s seemingly unassailable market leadership and phenomenal cash generation.

‘The company is guiding to another strong year...Costs are well controlled and margins look set to rise further. All in all, there should be more for the bulls than the bears in these numbers,’ he concluded.

At the time of writing the shares were trading up 8.7%, or 30.5p, at 384.5p.

Key stats
Market capitalisation£3,884m
No. of shares out1,022m
No. of shares floating702m
No. of common shareholdersnot stated
No. of employees19871
Trading volume (10 day avg.)2m
Turnover£1,594m
Profit before tax£474m
Earnings per share18.03p
Cashflow per share32.82p
Cash per share30.31p

Peel Hunt: Merlin can make magic again

Merlin Entertainments (MERL) is considering three new theme parks, which indicates that the business is serious about driving growth, according to Peel Hunt.

Analyst Ivor Jones reiterated his ‘buy’ recommendation and reinstated the target price from 375p back to 450p, after a presentation on three of its new brands ‘showed how magic is made’. Merlin Entertainments is planning three new events: Peppa Pig Playworld, Little Big City, and Bear Grylls Adventure.

‘The rigorous analytical approach showed that the company is serious about having fun,’ Jones said.

‘Our best guess is that only two of the three concepts will succeed and that none of them will matter to the share price until 2020. But the presentation showed that Merlin is doing just what it should to get out of the cauldron.’

The analyst added that the Alton Towers-owner has a ‘roadmap for returning to growth’. At the time of writing the shares were up 0.8% or 2.9p, at 382.9p.

Key stats
Market capitalisation£11,751m
No. of shares out490m
No. of shares floating480m
No. of common shareholdersnot stated
No. of employees15809
Trading volume (10 day avg.)2m
Turnover£3,187m
Profit before tax£1,631m
Earnings per share100.02p
Cashflow per share226.81p
Cash per share1.26p

Ashtead could surprise on the upside

Fourth quarter results from equipment rental company Ashtead (AHT) could surprise on the upside, according to Jefferies.

Analyst Will Kirkness retained his ‘buy’ recommendation and increased Jefferies’ target price from £24 to £27.50. At the time of writing, Ashtead which was trading up 1.05%, or 25p, at £24.14.

Kirkness said results next Tuesday should show rental revenue growth, which in turn could drive earnings.

‘The North American trading environment looks very supportive for volumes on rent, while utilisation and peer updates suggest a strong rate environment,’ he said.

‘We anticipate in line full-year 2018, but see upside risk in building for full year 2019.’

He added that the Ashtead’s pricing model is driven by product, customer, location but perhaps most importantly utilisation, which will benefit from a strong volume environment.

Key stats
Market capitalisation£m
No. of shares out88m
No. of shares floating55m
No. of common shareholdersnot stated
No. of employees1546
Trading volume (10 day avg.)m
Turnover£157m
Profit before tax£16m
Earnings per share7.23p
Cashflow per share14.75p
Cash per share7.96p

Liberum braced for good news at Joules

Clothing company Joules (JOUL) continues to be a ‘core holding’ in UK retail for Liberum after another year of double-digit growth.

Analyst Wayne Brown reiterated his ‘buy’ recommendation and increased the firm’s target price from 410p to 420p, after management guided that pre-tax profit would be ahead of market expectations.

Brown increased his expectations for 2018 profit before tax by 3%, indicating a 12% increase year-on-year.

‘The group’s well-balanced distribution model has driven strong growth in retail, against a tough market backdrop, alongside outperformance in wholesale as the nascent international opportunity is harnessed,’ he said.

‘We continue to see Joules as a core holding within UK clothing retail. The group sits among a select group of high quality companies that is driving both double-digit top-line growth and margin expansion.’

The shares were trading up 5.6%, or 18.5p, at 347.5p at the time of writing.

Key stats
Market capitalisation£m
No. of shares out273m
No. of shares floating182m
No. of common shareholdersnot stated
No. of employees908
Trading volume (10 day avg.)m
Turnover£164m
Profit before tax£45m
Earnings per share10.90p
Cashflow per share14.40p
Cash per share8.75p

Shore Capital sticks with RWS

After a steep share price fall, interim numbers from intellectual property translation and filing services company RWS Holdings (RWS) have provided some comfort for Shore Capital.

Analyst Ben McSkelly retained his ‘buy’ recommendation on the stock after it published its half-year results. This followed a challenging May, which saw its shares fall by 19%.

‘Broadly speaking, we see some initial comfort in the fuller results and guidance on the first two months of the current period,’ he said.

He said it was pleasing that Moravia, RWS’s Czech translation division, has accelerated over the past two months with client wins and better than expected synergies. Nevertheless, the analyst said margins still represent a concern.

‘Overall, a decent update on current trading, but we have a few more questions on Moravia,’ said McSkelly.

At the time of writing the shares were trading up 9.7%, or 35.5p, at 400.5p.

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Look up the shares

  • Ashtead Group PLC (AHT.L)
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  • Auto Trader Group PLC (AUTOA.L)
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  • Joules Group PLC (JOUL.L)
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  • Merlin Entertainments PLC (MERL.L)
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  • RWS Holdings PLC (RWS.L)
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