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The Expert View: BP, Hargreaves and Aviva

Our daily roundup of analyst commentary on shares, also including Stagecoach and Babcock.

by Daniel Grote on Feb 07, 2018 at 05:00

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Key stats
Market capitalisation£94,972m
No. of shares out19,931m
No. of shares floating19,777m
No. of common shareholdersnot stated
No. of employees74500
Trading volume (10 day avg.)32m
Turnover131,123m USD
Profit before tax13,024m USD
Earnings per share0.00 USD
Cashflow per share0.56 USD
Cash per share0.87 USD

Gergel hails BP’s strong results

Simon Gergel, manager of the Merchants investment trust, has hailed BP’s (BP) more than doubling of profits in 2017.

‘Annual results from BP show that the business has been transformed in the last few years, to cope with lower oil prices,’ he said, saying dividend payments from the oil giant were now looking a lot more secure.

‘Underlying cash flow for the year, before Gulf of Mexico payments, was almost enough to pay their whole capital expenditure and full dividend costs last year,’ he added.

‘Following a significant efficiency drive, investors have become more confident that dividend payments are secure and underpinned by underlying cash flows in the business. This has helped the shares deliver a very strong capital return in the last two years, on top of a high dividend yield.’

Key stats
Market capitalisation£8,352m
No. of shares out474m
No. of shares floating260m
No. of common shareholdersnot stated
No. of employees1043
Trading volume (10 day avg.)1m
Turnover£386m
Profit before tax£265m
Earnings per share44.57p
Cashflow per share45.92p
Cash per share54.82p

Shore weighs ‘buy’ rating on Hargreaves

Shore Capital analyst Paul McGinnis might be forced to downgrade Hargreaves Lansdown (HRGV) after big share price gains, despite his enthusiasm for the online stockbroker’s move into the cash savings market.

McGinnis rates the shares a ‘buy’, having last set his ‘fair value’ for the shares art £16.75 in August. But even with yesterday’s stock market falls, the shares are trading higher than that, at £17.67.

‘We will update our model for [yesterday’s interim results] and roll forward our valuation by six months and so we would expect to be closer to £18 per share but this may not be enough to retain our longstanding “buy” recommendation,’ he said.

Included in his valuation is 275p per share related to Hargreaves’ Active Savings cash proposition, whose launch is being trialled.

‘Hargreaves Lansdown’s “dream scenario” would be that Active Savings becomes the cash savings equivalent of Vantage where fund managers are willing to offer discounted fees in order to use its dominant market position to attract assets,’ he said.

‘An existing client base of around one million individuals with average funds of over £800,000 on the Vantage platform is an ideal starting point.’

The shares fell 0.9% to 477.5p yesterday.

Key stats
Market capitalisation£19,726m
No. of shares out4,013m
No. of shares floating3,989m
No. of common shareholdersnot stated
No. of employees29530
Trading volume (10 day avg.)10m
Turnover£55,303m
Profit before tax£2,876m
Earnings per share15.11p
Cashflow per share24.99p
Cash per share734.55p

Aviva results could bring buyback boost

Deutsche Bank is sticking with a ‘buy’ rating on Aviva (AV) ahead of results next month that could yield news on share buybacks.

‘A potential extra positive catalyst with the results is the possibility that management will announce the start of a buyback,’ said analyst Oliver Steel.

Aviva has already pledged to return or use £2 billion of excess cash, including ‘at least £500 million towards buy-backs of both ordinary and preference shares.

‘Excess cash should already be sufficient by end 2017 for this process to begin, given that the group arguably needs no more than £1.5 billion at the centre in normal circumstances,’ he said.

Aviva shares fell 3.3% to 489.1p yesterday.

Key stats
Market capitalisation£781m
No. of shares out573m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees34000
Trading volume (10 day avg.)1m
Turnover£3,941m
Profit before tax£229m
Earnings per share5.52p
Cashflow per share31.33p
Cash per share54.62p

‘Hold’ onto Stagecoach despite East Coast blow

Jefferies is sticking with its ‘hold’ rating on Stagecoach (SGC) as transport secretary Chris Grayling told parliament the government could take over the running of the East Coast franchise currently run by the transport group alongside Virgin.

Stagecoach has flagged it may incur further cash costs of £19 million, after having jointly provided £165 million with 10% partner Virgin to support the East Coast subsidiary.

‘The Department for Transport is currently negotiating for “not for profit” terms for Stagecoach / Virgin to continue running East Coast short term, with some end of contract incentives,’ said analyst Joe Spooner.

‘Negative headlines, but largely play through of past disappointments.’

Key stats
Market capitalisation£3,163m
No. of shares out506m
No. of shares floating497m
No. of common shareholdersnot stated
No. of employees35750
Trading volume (10 day avg.)2m
Turnover£4,547m
Profit before tax£443m
Earnings per share61.71p
Cashflow per share103.03p
Cash per share37.86p

Babcock ‘too cheap to ignore’

Liberum believes Babcock (BAB) is ‘too cheap to ignore’ despite the engineering group trimming its revenue forecasts yesterday.

The company said yesterday that despite the dent to revenues it would meet its earnings forecasts after cost savings helped it to increase margins.

Analyst Jo Brent maintained his ‘buy’ rating and £11 target price on the shares, which fell 4.2% to 625.4p yesterday.

‘A 2018 free cashflow yield of 7% is attractive for a company which is thought to be a poor cash generator,’ he said.

He added the company had reassured over its pipeline of work. ‘The pipeline has increased from £12 billion to £12.5 billion, and management says visibility is good for 2019.’

The shares were down 4% at 626.2p yesterday.

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  • BP PLC (BP.L)
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  • Hargreaves Lansdown PLC (HRGV.L)
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  • Aviva PLC (AV.L)
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  • Stagecoach Group PLC (SGC.L)
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  • Babcock International Group PLC (BAB.L)
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