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The Expert View: Barclays, National Express & Lloyds

Our roundup of analyst commentary on shares, including Pearson and Connect Group.

by Michelle McGagh on Oct 27, 2017 at 05:01

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Key stats
Market capitalisation£31,057m
No. of shares out17,043m
No. of shares floating16,989m
No. of common shareholdersnot stated
No. of employees119300
Trading volume (10 day avg.)35m
Turnover£14,541m
Profit before tax£7,017m
Earnings per share9.17p
Cashflow per share20.52p
Cash per share867.01p

Barclays at risk of stalling, says Hargreaves Lansdown

Barclays' (BARC) third quarter results disappointed Hargreaves Lansdown which said the bank's progress was slowing.

Shares fell 6.5%, or 13p, to 184p after Barclays reported a net loss of £628 million for the first nine months of the year after a £2.1 billion write-down in its former African business. Excluding that pre-tax profits jumped to £3.4 billion from £2.9 billion. For the third quarter pre-tax profits grew to £783 million from £509 million as the bank avoided setting aside more money for payment protection insurance (PPI) mis-selling. However, the investment bank that chief executive Jes Staley is trying to revive saw profits hit by a slump in trading.

Analyst Laith Khalaf said: ‘After making some progress, Barclays appears to be stalling somewhat and it’s now touch and go whether the bank will break even in 2017,’ said Khalaf.

Key stats
Market capitalisation£1,864m
No. of shares out512m
No. of shares floating437m
No. of common shareholdersnot stated
No. of employees44977
Trading volume (10 day avg.)1m
Turnover£2,094m
Profit before tax£341m
Earnings per share21.85p
Cashflow per share52.95p
Cash per share62.16p

National Express has turned a corner, says Liberum

Liberum’s confidence in National Express (NEX) is growing after an encouraging trading update from the train and bus operator.

Analyst Gerald Khoo retained his ‘buy’ recommendation and target price of 390p on the stock, which added 1.1%, or 3.8p, to 346.5p on Thursday.

He noted an ‘encouraging update’ in the three months to 30 September with growth in passenger volumes, revenues, and profits and positive trends in Spain and North America.

‘Interestingly, UK bus appears to have turned the corner with a return to revenue growth, mainly the result of management initiatives on fares,’ he said. ‘Management sees the group on course to hit full-year targets for profit, free cashflow and leverage. We see full-year consensus as unlikely to change, but with an improved confidence level.’

Khoo added that the shares were ‘attractive in absolute terms’ despite trading on a c.30% premium to the peer group average.

Key stats
Market capitalisation£49,677m
No. of shares out72,037m
No. of shares floating71,739m
No. of common shareholdersnot stated
No. of employees70255
Trading volume (10 day avg.)171m
Turnover£16,620m
Profit before tax£11,821m
Earnings per share2.91p
Cashflow per share6.74p
Cash per share103.78p

Lloyds is overvalued, says Berenberg

Lloyds' (LLOY) strategy may be under pressure says Berenberg which predicts challenges ahead for a stock it considers overvalued.

Analyst Peter Richardson retained his ‘sell’ recommendation and share price target of 55p after the bank's third quarter results on Wednesday as he believes ‘tangible strains in Lloyds’ growth-led strategy may be emerging’.

‘Until recently, strategies to grow cyclical exposures have attracted a valuation premium,’ he said. ‘This will reverse as the cycle turns. Those seeking short-term solace in Lloyds’ Q3 results will find it...Longer term however, the results reinforce our belief that earnings headwinds will emerge alongside cyclical and structural capital headwinds.’

He said there is no tangible book growth and as the shares are ‘overvalued’. The shares firmed 1.3% or 0.9p to 68.8p.

Key stats
Market capitalisation£5,907m
No. of shares out820m
No. of shares floating812m
No. of common shareholdersnot stated
No. of employees32719
Trading volume (10 day avg.)6m
Turnover£4,552m
Profit before tax£647m
Earnings per share-286.82p
Cashflow per share-241.90p
Cash per share180.38p

Deutsche Bank: pressures at Pearson next year and beyond

Pearson (PSON) may have reported a better-than-expected performance in its core US market last week but Deutsche Bank warns the educational publisher still faces structural challenges.

Analyst Chris Collett retained his ‘sell’ recommendation in response to the third quarter update but lifted his share price target to 500p from 470p. The stock gained 15p, or 2.2%, to close at 720.3p on Thursday.

‘Despite the decline in the college textbook market being better than we feared, there is no sign that structural pressures have been alleviated,’ he said. ‘Investors should not be lulled into thinking that the college textbook market has recovered, in our view, the market is very lumpy...We think the market will continue to decline over the next several years, creating a headwind for Pearson’s most profitable unit.’

He said the target price moves up but with 28% downside and structural concerns remaining, he retained the ‘sell’. ‘Pearson trades at 14.7x 2018 price/earnings, with a 4% free cashflow yield and 2.3% dividend yield,’ said Collett.

‘We think these multiples are unattractive given the lack of growth and structural pressures that will likely continue in 2018 and beyond.’

Key stats
Market capitalisation£255m
No. of shares out248m
No. of shares floating240m
No. of common shareholdersnot stated
No. of employees5968
Trading volume (10 day avg.)m
Turnover£1,842m
Profit before tax£75m
Earnings per share11.37p
Cashflow per share20.91p
Cash per share3.69p

Investors cheer Connect's recovery but Shore Capital unhappy with disclosure

Full-year results from newspaper distribution and parcel delivery business Connect Group (CNCT) setting out the sale of its books division did not impress Shore Capital.

Analyst Martin Brown retained his recently upgraded ‘buy’ recommendation on the stock but complained the announcement that Connect Books had been held for sale and its contribution stripped out of underlying performance was ‘confusing’. He believed the overall operating profit before restructuring costs was £50.4 million versus the expected £61.1 million.

‘Prior to [the] announcement Connect was trading on a 2018 price earnings of 6x, embedded value/EBITDA of 4.8x and a dividend yield of 9.7%,’ he said.

‘[The] statement in our opinion, will do little to restore investor confidence in the outlook for the group. We recently upgraded to a ‘buy’ recommendation, the dividend should in theory provide support at these levels however greater clarity on the future prospects for the group will be required before investors get on board.’

Investors were more enthusiastic, however, pushing the shares up 13% or 11.75p to 102.5p.

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  • Barclays PLC (BARC.L)
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  • National Express Group PLC (NEX.L)
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  • Lloyds Banking Group PLC (LLOY.L)
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  • Pearson PLC (PSON.L)
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  • Connect Group PLC (CNCTC.L)
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