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The Expert View: BT, Legal & General and G4S

Our daily roundup of analyst commentary on shares, also including Hastings and Interserve.

by Michelle McGagh on Aug 10, 2017 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£31,292m
No. of shares out9,917m
No. of shares floating8,350m
No. of common shareholdersnot stated
No. of employees106400
Trading volume (10 day avg.)22m
Turnover£24,082m
Profit before tax£1,908m
Earnings per share19.09p
Cashflow per share54.83p
Cash per share20.56p

Barclays: BT is ‘near the bottom’

Barclays believes BT (BT) is ‘near the bottom’ after two years of steady downgrades, meaning there is upside potential.

Analyst Maurice Patrick retained his ‘overweight’ recommendation and target price of 450p on the shares, which fell 1.2% to 313.3p yesterday.

‘After two years of steady downgrades, we note three small events that should give confidence that we are near – if not at – the bottom,’ he said.

These events are the equalising of the cost of capital and the results on “charge-controlled services”. Patrick also believes the £300 million BT will have to pay out to companies over the use of a loophole that artificially reduce the amount it compensated them when it failed to connect to a line, was too ‘conservative’. And thirdly, there are reports that the telecoms giant is considering capping its pension liabilities.

Key stats
Market capitalisation£4,780m
No. of shares out1,552m
No. of shares floating1,539m
No. of common shareholdersnot stated
No. of employees592897
Trading volume (10 day avg.)4m
Turnover£7,590m
Profit before tax£201m
Earnings per share13.00p
Cashflow per share24.77p
Cash per share57.68p

Jefferies predicts earnings per share fall at G4S

Organic revenue growth is slowing at security business G4S (GFS) and Jefferies is expecting earnings per share estimates to fall.

Analyst Kean Marden reiterated his ‘hold’ recommendation and target price of 270p on the stock after interim results that showed first half earnings per share 3% ahead of consensus. However, he is not expecting that tick up to continue.

The shares slumped 5.1% to 313.8p yesterday.

‘Interim earnings per share is in line with expectations but organic revenue growth slowed considerably in the second quarter, mainly due to emerging markets, and comparables are tougher in the second half,’ he said.

‘In additional, working capital disappointed and the pension deficit increased. In our view, consensus full-year 2017 earnings per share estimates may fall by low single digits [following the results] but top of the range valuation multiples require upgrades.’

Key stats
Market capitalisation£2,098m
No. of shares out657m
No. of shares floating228m
No. of common shareholdersnot stated
No. of employees2367
Trading volume (10 day avg.)m
Turnover£484m
Profit before tax£78m
Earnings per share11.90p
Cashflow per share16.09p
Cash per share25.56p

Hastings is a ‘standout’ business, says Peel Hunt

First half results from Hastings (HSTG) shows it remains a ‘standout insurer’ in the competitive motor insurance market, says Peel Hunt.

Analyst Andreas van Embden retained his ‘add’ recommendation and target price of 340p on the stock after the company reported a 36% rise in net profit in H1 to £57.9 million, ahead of consensus.

The company continues to target three million policies by 2019 and reduce debt, which when achieved Embden believes will result in a ‘material increase in dividend pay-out’.

‘Another strong set of results from Hastings underpinned by 15% policy growth and market share wins as the company continues to benefit from the growth of price comparison website distribution and a hard UK motor market,’ he said.

‘A consistent delivery of targets combined with an attractive business model and strong cash generation should allow the capital base to de-lever and the payout ratio to improve. We stay positive as Hastings remains one of the standout insurers in the competitive UK motor market.’

The shares were flat at 321.8p yesterday.

Key stats
Market capitalisation£330m
No. of shares out146m
No. of shares floating134m
No. of common shareholdersnot stated
No. of employees46246
Trading volume (10 day avg.)1m
Turnover£3,149m
Profit before tax£-104m
Earnings per share-71.22p
Cashflow per share-22.53p
Cash per share77.76p

Liberum: Interserve expected to go sideways

Liberum is expecting a boost to Interserve (IRV) after in line results but said shares in the support services company could trade sideways from here.

Analyst Joe Brent retained his ‘hold’ recommendation and target price of 240p on the stock, which fell 1% to 221.1p yesterday.

He noted that first half results were ‘in line with expectations’ and left full year earnings estimates unchanged.

Brent said he expected ‘a positive reaction [following the results] but then the shares may continue to trade sideways’ until there was more news on Interserve’s exit from the energy for waste market.

‘A current year 2018 price/earnings of 3.7x appears attractive, however we believe the low multiple is justified by the expected earnings pressure and the risks on the balance sheet,’ he said.

‘However, if management can deliver on existing estimates, if may not need recourse to equity.’

Key stats
Market capitalisation£16,177m
No. of shares out5,957m
No. of shares floating5,836m
No. of common shareholdersnot stated
No. of employees8253
Trading volume (10 day avg.)14m
Turnover£77,969m
Profit before tax£1,258m
Earnings per share21.13p
Cashflow per share22.17p
Cash per share431.88p

Hargreaves: L&G close to being a £1trn investment company

Legal & General (LGEN) is ‘tantalisingly close’ to being a trillion pound investment company and the market is warming to the story, says Hargreaves Lansdown.

Interim results showed profits were up 43% to £952 million and the dividend increased 7% to 4.3p as new pension business soared and the investment business gathered £21.7 billion of new assets.

The shares fell 2% to 270.5p yesterday.

Steve Clayton, manager of the HL Select UK Income Shares fund, said the group has added a billion pounds to its solvency pot, taking the surplus to £6.7 billion, which he said ‘should settle a lot of arguments about how strong the balance sheet is’.

‘All in all, these are a really encouraging set of numbers. L&G is performing strongly and if there are further reserve releases ahead, the group’s capital position can only get stronger. The shares have been hitting new all-time highs in recent sessions, a sign that the market is clearly warming to the L&G story.’

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  • Hastings Group Holdings PLC (HSTG.L)
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  • BT Group PLC (BT.L)
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  • Legal & General Group PLC (LGEN.L)
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  • G4S PLC (GFS.L)
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  • Interserve PLC (IRV.L)
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