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The Expert View: Balfour Beatty, Lookers and N Brown

Our daily roundup of analyst commentary on shares, also including BGEO and Prudential

by Michelle McGagh on Aug 17, 2017 at 05:00

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Key stats
Market capitalisation£1,927m
No. of shares out690m
No. of shares floating686m
No. of common shareholdersnot stated
No. of employees21829
Trading volume (10 day avg.)1m
Profit before tax£m
Earnings per share-0.01p
Cashflow per share7.46p
Cash per share111.45p

Hargreaves: Balfour Beatty’s 'build to last' is here to stay

Balfour Beatty's (BALF) turnaround strategy has some way to go yet, according to Hargreaves Lansdown.

Hargreaves analyst Nicholas Hyett’s comments followed positive results from the construction company. Over the first half of the year, it reported underlying profit of £39 million, up from £11 million last year. The interim dividend was increased 33% to 1.2p a share and the shares rose 4.1% following the results.

The shares surged 6.8% to 280.1p yesterday.

Hyett praised the first stage of chief executive Leo Quinn’s ‘build to last’ strategy, which has resulted in margin improvement and a streamlining of the business to focus on a few core areas of expertise.

‘While the strategy is sensible and progress is being made, there’s still some way to go before Balfour is in rude health – the final phase doesn’t even get started until 2019,’ said Hyett. ‘When it’s all over Balfour could prove a nice little earner for investors, for now though, “build to last” is here to stay.’

Key stats
Market capitalisation£427m
No. of shares out397m
No. of shares floating302m
No. of common shareholdersnot stated
No. of employees9081
Trading volume (10 day avg.)m
Profit before tax£72m
Earnings per share17.67p
Cashflow per share23.38p
Cash per share10.04p

Lookers braced for challenging second half, says Liberum

In spite of a strong first half, car dealership Lookers (LOOK) is preparing for tougher trading conditions for the rest of 2017.

Liberum analyst Adam Tomlinson retained his ‘buy’ recommendation and target price of 175p on the shares, which tumbled 9.2% to 106.2p yesterday.

He noted the company had delivered strong results over the first half, with underlying pre-tax profit up 18% to £50.2 million. This was driven by growth across all divisions and the successful integration of previous acquisitions. The September order book is building well and in line with expectations, while used car and aftersales were described as ‘encouraging’.

Nevertheless, Tomlinson said management remains more cautious in their outlook for the remainder of 2017 due to declines expected in the new car market.

Key stats
Market capitalisation£934m
No. of shares out283m
No. of shares floating146m
No. of common shareholdersnot stated
No. of employees2742
Trading volume (10 day avg.)m
Profit before tax£44m
Earnings per share15.66p
Cashflow per share25.41p
Cash per share22.62p

Jefferies: don’t underestimate N Brown

The market is failing to appreciate the strength of balance sheet at specialist fit fashion retailer N Brown (BWNG), says Jefferies.

Analyst Joe Spooner retained his ‘buy’ recommendation and increased his target price from 325p to 370p on the shares, which rose 2.1% to 327.5p yesterday.

‘We sense that N Brown’s balance sheet strength is not widely appreciated,’ he said. ‘With the group building trading momentum over the last year as the benefits of its strategy had fed through, we think there is scope for the shares to better reflect this hidden balance sheet value.’

He said the company, which owns Jacamo and Simply Be, can ‘more than cover’ its £40 million annual dividend from annual trading, thanks to its strong balance sheet.

Key stats
Market capitalisation£1,396m
No. of shares out39m
No. of shares floating37m
No. of common shareholdersnot stated
No. of employees24091
Trading volume (10 day avg.)m
Profit before tax129
Earnings per share3.26 GEL
Cashflow per share3.82 GEL
Cash per share17.87 GEL

BGEO shares have further to go, says Peel Hunt

Although shares in BGEO (BGEO), formerly Bank of Georgia, have rallied 18% since January, Peel Hunt expects they have further to run.

Analyst Anthony Da Costa retained his ‘add’ recommendation and target price of £40.00 after the company reported strong second quarter and first half results.

The shares fell 3.1% to £33.24 yesterday.

‘BGEO trades on 9.4x December 2017 earnings and 1.6x 2017 net asset value, which for a 2017 return on equity of 19% is not unattractive,’ he said.

‘There is also the prospect of 3% yield for 2017. We see marginal upside risk to our forecasts if the strong economic growth translates into lower impairments, higher loan growth and stronger non-core profits.’

Da Costa added that the bank continues to return capital through its buyback and cancellation programme. Despite the rally in shares, he expects to see some upside.

Key stats
Market capitalisation£47,341m
No. of shares out2,586m
No. of shares floating2,572m
No. of common shareholdersnot stated
No. of employees26267
Trading volume (10 day avg.)4m
Profit before tax£1,921m
Earnings per share74.98p
Cashflow per share81.19p
Cash per share381.36p

Deutsche: Pru price does not reflect M&G merger

The opportunity for accelerated growth and a profit lift from the merger of M&G and Prudential (PRU) is not reflected in its share price, according to Deutsche Bank.

Analyst Oliver Steel retained his ‘buy’ recommendation and target price of £20 on the stock, following its first half results. He said there three key messages came out of the results.

‘First, that underlying US margins are modestly worse than assumed; second, that the outlook for net flows looks better than assumed; and third, that the merger of the UK operation with M&G creates extra potential for the shares to re-rate,’ he said.

Steel believes that neither the higher-than-average growth rate nor the extra UK optionality is reflected in Prudential’s rating. He expects the M&G merger to lift group profits by 2%, based on cost savings, with the potential for more if it pushed up revenues.

‘Almost nothing of this is captured in our forecasts,’ he said.

The sale of the UK annuity book also had the potential to add value, Steel added. The shares edged 16p higher to £18.27 yesterday.

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Look up the shares

  • Balfour Beatty PLC (BALF.L)
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  • Lookers PLC (LOOK.L)
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  • N Brown Group PLC (BWNG.L)
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  • BGEO Group PLC (BGEO.L)
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  • Prudential PLC (PRU.L)
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