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The Expert View: Aviva, Unite and Rentokil

Our daily roundup of analyst commentary on shares, also including PureTech and Euromoney.

by Michelle McGagh on Dec 05, 2017 at 05:00

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Key stats
Market capitalisation£20,427m
No. of shares out4,011m
No. of shares floating3,982m
No. of common shareholdersnot stated
No. of employees29530
Trading volume (10 day avg.)14m
Turnover£55,303m
Profit before tax£2,876m
Earnings per share15.11p
Cashflow per share24.99p
Cash per share734.55p

Aviva: light at the end of the tunnel, says Deutsche Bank

Insurer Aviva (AV) has completed its ‘heavy lifting’, according to Deutsche Bank, and there are increased payouts to come.

Analyst Oliver Steel retained his ‘buy’ recommendation and increased his target price from 585p to 600p. The shares edged 1.6p higher to 508.1p yesterday.

‘After years of heavy lifting, there is light at the end of the tunnel,’ he said. ‘A commitment to repaying at least £900 million of debt next year reduces leverage to near the peer group average – 31% by 2019.

‘In turn, the normalisation of the leverage ratio and improved quality of earnings is enabling an uplift to the payout ratio to 55-60% by 2020, implying 10% per annum growth over 2018-2020 from a yield base that is already 0.7% above the sector.’

He added that the prospects of above mid-single digit growth could see a re-rating of the shares over time ‘from a price/earnings [ratio] 23% below the sector average’.

Key stats
Market capitalisation£1,749m
No. of shares out241m
No. of shares floating239m
No. of common shareholdersnot stated
No. of employees1206
Trading volume (10 day avg.)1m
Turnover£121m
Profit before tax£55m
Earnings per share93.21p
Cashflow per share96.04p
Cash per share19.23p

Unite is top of the class, says Liberum

Student accommodation company Unite (UTG) is offering one of the ‘best total return prospects’ in the sector, according to Liberum.

Analyst David Brockton retained his ‘buy’ recommendation and increased his target price from 770p to 850p. The shares jumped 2.1% to 724.5p yesterday.

Brockton said that analysing the portfolio showed ‘the business offers one of the best total return prospects in the sector, almost twice the sector average, supported by double-digit earnings growth and low relative risk’, he said.

‘We expect sustained positive like-for-like rental growth to be enhanced by the group’s significant development pipeline and scale benefits,’ said Brockton.

He added that the portfolio was ‘well located’ and the development market meant there was ‘room for growth’.

Key stats
Market capitalisation£5,845m
No. of shares out1,837m
No. of shares floating1,824m
No. of common shareholdersnot stated
No. of employees32150
Trading volume (10 day avg.)4m
Turnover£2,168m
Profit before tax£493m
Earnings per share9.11p
Cashflow per share22.36p
Cash per share9.28p

Jefferies predicts a pause in the Rentokil rally

Jefferies has initiated coverage of Rentokil Initial (RTO) and despite the strength of the shares has warned of a tighter balance sheet at the pest control and hygiene business.

Analyst James Winckler initiated with a ‘hold’ recommendation and target price of 335p on the shares, which edged 2.6p higher to 317.7p yesterday.

‘Rentokil’s stock has rallied c.415% since 2012, however, we believe that a tighter balance sheet, rising M&A valuations, and opaque margin progression warrant a pause in the rally,’ he said.

‘We forecast Rentokil will grow revenues within its 5-8% guidance range in full-year 2018 with no apparent catalyst for multiple expansion.’

He added that the company needed to sustain mergers and acquisitions (M&A) in order to ‘justify its valuation, however, we find both bolt-on and transformational M&A to be unhelpful to margins, adding to our scepticism for multiple expansion’.

Key stats
Market capitalisation£65m
No. of shares out48m
No. of shares floating27m
No. of common shareholdersnot stated
No. of employees155
Trading volume (10 day avg.)m
Turnover£21m
Profit before tax£3m
Earnings per share1.69p
Cashflow per share5.26p
Cash per share2.98p

Digital prescription success de-risks PureTech, says Numis

Numis has increased its price target for PureTech Health (PRTC) after success in treating attention deficit hyperactivity disorder (ADHD) with ‘digital medicine’.

Analyst Stefan Hamill retained his ‘buy’ recommendation and increased the target from 233p to 259p after PureTech’s unlisted affiliate company Akili successfully treated ADHD in children with tailor-made video games. The shares rallied 5.5% to 135.5p yesterday on the news.

Hamil said the video games were ‘a first in class prescription digital medicine that has just met its primary endpoint in ADHD in the largest and most clinically rigorous study seen to date in the digital medicine field’.

‘We believe it will represent an attractive, safer treatment option in ADHD where many parents are concerned over the use of drug therapy in children,’ he said.

‘We de-risk Akili in our sum-of-the-parts [valuation], moving our valuation of PureTech up c.11% to 259p.’

Key stats
Market capitalisation£1,238m
No. of shares out109m
No. of shares floating54m
No. of common shareholdersnot stated
No. of employees2262
Trading volume (10 day avg.)m
Turnover£387m
Profit before tax£103m
Earnings per share32.68p
Cashflow per share57.92p
Cash per share4.06p

Euromoney: more opportunities than concerns, says Peel Hunt

Investors are concerned about how Europe’s Mifid regulation affects Euromoney (ERM) but Peel Hunt believes that is blinding them to the opportunities for the business magazine publisher.

Analyst Malcolm Morgan retained his ‘buy’ recommendation and target price of £13.30 on the shares, which edged 3p higher to £11.34 yesterday.

‘As investors assess the prospects for Euromoney, we believe the opportunity provided by recent disposals is more important than the disruption posed by Mifid,’ he said.

‘For sure, Mifid may impact demand from asset managers for a period. But this disruption – like a major currency shift – is both an external, and in our view, a transitory issue.

‘However, in comparison the opportunity presented by the £250 million of disposal proceeds to reposition Euromoney is very exciting. Get this opportunity right and Mifid could fade in comparison.’

He added that the opportunity for mergers and acquisitions ‘to drive the equity story supports our “buy” recommendation at current target price’.

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  • Aviva PLC (AV.L)
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  • Unite Group PLC (UTG.L)
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  • Rentokil Initial PLC (RTO.L)
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  • PureTech Health PLC (PRTC.L)
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  • Euromoney Institutional Investor PLC (ERM.L)
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