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The Expert View: Barclays, Taylor Wimpey and Serco
Our daily roundup of analyst commentary on shares, also including Ashtead and Johnson Service Group.
by Michelle McGagh on Mar 02, 2016 at 05:00
Barclays not cutting aggressively enough for Shore
Shore Capital doesn’t believe Barclays (BARC) has gone far enough in trying to cut costs, and has warned shares in the bank are not as cheap as they seem.
Shares in Barclays tumbled 8.8% to 156.9p yesterday after the bank shocked investors by more than halving the dividend for 2016 and 2017.
It announced a 3.5p final dividend for this year, bringing the full-year payment to 6.5p, but payouts will fall to 3p this year and the next.
The bank is also to sell down its African operations and has set a new target of reducing core bank costs to £12.8 billion for 2016. However, given the previous target was to reduce costs to £14.5 billion, which unlike the new figure included African costs, Shore Capital analyst Gary Greenwood saw this new target as more lenient. Greenwood rates the bank a
‘It also looks the return on equity guidance has been dropped,’ he said. ‘Overall, this is a pretty disappointing update from Barclays and we suspect the market will not be too impressed by the changes to guidance or the measures being taken to improve performance.
‘Cost cutting does not seem to be aggressive enough to us, and the lack of formal guidance on return on equity is a little worrying. The stock may seem optically cheap, but we continue to prefer the better capitalised Lloyds and Royal Bank of Scotland.’
Peel Hunt backs Ashtead recovery
Peel Hunt is sticking with its ‘buy’ recommendation on Ashtead (AHT), backing the tool hire company to regain ground lost amid investor fears over the US economy.
Shares in the company have lost around a quarter of their value since the turn of the year, including an 8.9% slump yesterday as the company said it would cut capital expenditure next year.
This reignited fears over a potential slowdown in the US, where Ashtead generates the bulk of its profits.
But Peel Hunt analyst Andrew Nussey said that the shares offered ‘upside potential’. ‘The shares have been materially derated through 2016 as investors become concerned over the outlook for the US economy,’ he said.
‘However, these fears look overplayed and with another strong operational performance we can see the shares recovering lost ground.’
Johnson investors clean up on dividend front
Dry cleaning and textile rental company Johnson Service Group (JSG) has delivered a solid set of full-year results with a 23.5% hike in the dividend.
Investec analyst Andrew Gibb retained his ‘buy’ rating on the stock with a 100p target price on the shares, which were broadly flat at 90.9p yesterday.
The company reported profit before tax of £25.2 million, up 26% on last year, and announced a 2.1p full-year dividend.
‘2015 was another positive period for the group, with recent acquisitions integrating to plan and organic growth solid,’ said Gibb.
‘The balance sheet remains in a good position and this gives the group plenty of capacity to look to further consolidate its core markets. We continue to view the stock as a key pick in our coverage universe and reiterate our “buy”.’
Serco shares could double in three years
Liberum believes shares in outsourcing company Serco (SRP) could double over the next three-to-four years as chief executive Rupert Soames implements his turnaround plan.
Analyst Joe Brent rates the shares a ‘buy’ with a 135p target price. Serco jumped 9.1% yesterday after the company posted a trading profit ahead of guidance and cut a chunk out of its debt.
‘Rupert Soames paraphrases Von Moltke that the plan has survived the first contact with the enemy,’ said Brent.
‘Profit was in line, but free cash flow, but free cash flow, onerous contract provision and net debt were better. We leave our [earnings estimates] unchanged, recognising it is a little ahead of guidance.
‘We believe the shares could double over three-to-four years. As another great leader said, “If you are going through hell, keep going”.’
Taylor Wimpey starts 2016 on front foot
Numis has increased his estimate for Taylor Wimpey (TW) after a strong start to the year for the house builder.
Analyst Chris Millington kept his ‘add’ recommendation on the stock but increased his target price on the shares to 205p. Taylor Wimpey rose 1.2p to 187.4p yesterday after reporting profit before tax up 34.1% to £603.8 million and a 1.67p full-year dividend.
‘Taylor Wimpey’s full-year results are in line with expectations, but to reflect a slightly stronger volume, price and margin outlook we have increased 2016 estimates by 4%,’ he said.
‘The group has seen a strong start to the year and in our view there are still upside risks to both profit estimates and the size of the cash return.
‘Accordingly, we are increasing our target price to 205p, which maintains our “add” recommendation and would equate to a 7% yield for 2017 on our forecasts.’
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Look up the shares
- Taylor Wimpey PLC (TW.L)
- Serco Group PLC (SRP.L)
- Barclays PLC (BARC.L)
- Johnson Service Group PLC (JSG.L)
- Ashtead Group PLC (AHT.L)