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The Expert View: BP, Carpetright and Safestyle

Our daily roundup of analyst commentary on shares, also including DS Smith and Connect Group.

by Michelle McGagh on May 02, 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£108,883m
No. of shares out19,953m
No. of shares floating19,800m
No. of common shareholdersnot stated
No. of employees74000
Trading volume (10 day avg.)34m
Turnover174,341m USD
Profit before tax19,580m USD
Earnings per share0.16 USD
Cashflow per share0.73 USD
Cash per share0.94 USD

BP on the road to recovery, says Hargreaves Lansdown

The future is looking brighter for BP (BP) despite significant demands on its cash resources, says Hargreaves Lansdown.

The oil giant reported first quarter profits before tax 73% ahead of a year ago at $4.7 billion, pushing up the shares 1.8% or 9.7p to 547.7p.

Analyst Nicholas Hyett said the headline profits looked strong and ‘just as importantly, those profits are being converted to cash’ although ‘BP is seeing more demand on that cash than most’ thanks to Deepwater Horizon compensation, sustaining its dividend, and a share buyback programme. It also has a growing debt pile to repay.

‘However, improving conditions, declining Gulf of Mexico costs, and some dramatic increases in upstream production mean the future looks brighter,’ said Hyett.

‘Perhaps most importantly the dividend looks increasingly secure. If net debt goes into decline next quarter, then BP will be well and truly on the road to recovery.’

Key stats
Market capitalisation£29m
No. of shares out68m
No. of shares floating64m
No. of common shareholdersnot stated
No. of employees3206
Trading volume (10 day avg.)m
Turnover£458m
Profit before tax£27m
Earnings per share1.01p
Cashflow per share18.64p
Cash per share18.41p

Carpetright taking charge of its destiny, says Shore Capital

If Carpetright (CPRC) can pull off its planned £60 million equity raising, investors will be able to draw a line in the sand under the carpet retailer’s problems, says Shore Capital.

Analyst Phil Carroll retained his ‘hold’ recommendation after the company announced on Monday it would seek money from shareholders, its banks and asked landlords for a cut in rent after increased its full-year loss guidance to £7-9 million.

Carroll said the loss guidance was ‘not a surprise given underlying trading conditions and the ongoing restructure’.

‘We believe it is good to see management taking decisive action to get the business into a position where it is more in charge of its own destiny rather than fighting legacy issues,’ he said.

The shares shed 0.4p or 0.9% to close at 43p.

Key stats
Market capitalisation£49m
No. of shares out83m
No. of shares floating76m
No. of common shareholdersnot stated
No. of employees811
Trading volume (10 day avg.)1m
Turnover£159m
Profit before tax£16m
Earnings per share13.00p
Cashflow per share15.08p
Cash per share13.26p

Liberum: significant upside at Safestyle

Shares in double-glazing company Safestyle (SFES) are pricing in more risk than reward and Liberum believes there could be significant upside.

Analyst Charlie Campbell retained his ‘hold’ recommendation and target price of 50p on the stock following the appointment of new chief executive Mike Gallacher, who replaces Steve Birmingham.

‘Gallacher led an impressive turnaround in his last post at First Milk, adding £34 million to group profit,’ he said. ‘Birmingham joins the chief financial officer in moving on, losing significant experience from the board, but their replacements are high calibre and the handover orderly and managed.’

Campbell said that the shares were ‘pricing in much more risk than reward’ and there ‘could be very significant upside if the new team can stabilise profits and restore growth in spite of a challenging market and industry backdrop’.

The shares jumped 6.1% to 59.2p yesterday.

Key stats
Market capitalisation£5,665m
No. of shares out1,074m
No. of shares floating1,067m
No. of common shareholdersnot stated
No. of employees25674
Trading volume (10 day avg.)2m
Turnover£4,781m
Profit before tax£582m
Earnings per share21.98p
Cashflow per share44.80p
Cash per share14.62p

Numis: further growth expected at DS Smith

DS Smith (SMDS), manufacturer of corrugated cardboard and recycled paper, is expected to benefit from the integration of acquisitions, keeping performance consistent this year, says Numis.

Analyst Kevin Fogarty retained his ‘hold’ recommendation and target price of 530p on the stock, which rose 1.1% to 528p yesterday.

‘DS Smith has traded in line with expectations for the year ending 30 April 2018, continuing to benefit from demand from e-commerce and multinational customers,’ he said.

‘Input cost recovery is proceeding as anticipated and our forecast for margins in 2018 to be comparable with 2017, is consistent with management’s expectations.’

He added that volume growth had been strong and this will continue to the end of the year financial year ‘helping DS Smith to gain further market share’.

Key stats
Market capitalisation£140m
No. of shares out248m
No. of shares floating241m
No. of common shareholdersnot stated
No. of employees5951
Trading volume (10 day avg.)m
Turnover£1,594m
Profit before tax£79m
Earnings per share10.93p
Cashflow per share24.05p
Cash per share2.22p

Connect Group can deliver, says Peel Hunt

Parcel delivery group Connect Group (CNCT) has seen profit fall but Peel Hunt said action is underway to improve performance.

Analyst Christopher Bamberry retained his ‘hold’ recommendation and target price of 67p on the stock following full year 2018 interims that were in line with expectations despite profit before tax falling 30%. Connect continues to expected full year profit before tax in the range of £42 million to £45 million.

‘Action [is] underway to improve the performance of Tuffnells and re-engineering [the] click and collect proposition,’ he said.

He added that management ‘remains confident of achieving the £15 million cost saving target over two years’.

‘The shares trade on 4.4x full year 2018 earnings per share…a 58% discount to the Numis Smaller Companies index. The shares offer a 16.7% 2018 dividend yield – 1.4x covered by earnings per share, but not covered by free cashflow,’ said Bamberry.

The shares were trading down 3.7%, or 2.2p, at 57p at the time of writing.

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  • BP PLC (BP.L)
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  • Carpetright PLC (CPRC.L)
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  • Connect Group PLC (CNCTC.L)
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  • DS Smith PLC (SMDS.L)
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  • Safestyle UK PLC (SFES.L)
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