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The Expert View: Capita, Domino’s and TalkTalk

Our daily roundup of analyst commentary on shares, also including Inmarsat and Pets At Home.

by Michelle McGagh on Jun 27, 2017 at 05:00

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Key stats
Market capitalisation£4,711m
No. of shares out667m
No. of shares floating660m
No. of common shareholdersnot stated
No. of employees74755
Trading volume (10 day avg.)5m
Turnover£4,898m
Profit before tax£37m
Earnings per share5.55p
Cashflow per share44.20p
Cash per share164.69p

Capita significantly undervalued after fund arm sale, says Numis

Capita (CPI) has secured a better than expected price for its Capita Asset Services division, and Numis believes the shares remain ‘significantly undervalued’.

Analyst Julian Carter retained his ‘buy’ recommendation and increased the target price to 850p after Capita agreed to sell its asset services division to Link Administration for £888 million.

‘Capita has secured an excellent price for the disposal,’ he said. ‘Proceeds are expected in the fourth quarter post-regulatory approvals, and this will significantly de-gear the balance sheet.’

He said the price achieved made ‘the likelihood of an equity raise post the arrival of a new chief executive improbable’.

‘With balance sheet concerns addressed, focus now turns to execution of the cost savings plan, the intentions of a new chief executive, and the outlook for growth. We believe the shares remain significantly undervalued,’ said Carter.

Shares were trading up 2.8%, or 19.5p, at 711p at the time of writing.

Key stats
Market capitalisation£1,427m
No. of shares out492m
No. of shares floating486m
No. of common shareholdersnot stated
No. of employees911
Trading volume (10 day avg.)4m
Turnover£361m
Profit before tax£65m
Earnings per share12.93p
Cashflow per share14.41p
Cash per share4.75p

Peel Hunt: buy in on Domino’s weakness

Peel Hunt said now is the time to buy Domino’s (DOM) as its price-earnings (PE) ratio is the lowest it has been in 13 years.

Analyst Douglas Jack retained his ‘buy’ recommendation and target price of 400p on the stock, which was trading up 0.8%, or 2.5p, at 285p at the time of writing.

‘Domino’s shares are on their lowest PE rating in 13 years, even though franchise earnings per store have risen from £102,000 to £164,000 in the last three years,’ he said.

He said first half sales would be low but predicted ‘trading to bounce back in late 2017 and 2018 and would use weakness to buy into the company’s long term model, substantial cashflow and capacity to re-rate’.

He urged investors ‘to buy in on weakness and hold for the long term’.

Key stats
Market capitalisation£1,680m
No. of shares out955m
No. of shares floating524m
No. of common shareholdersnot stated
No. of employees2226
Trading volume (10 day avg.)3m
Turnover£1,783m
Profit before tax£58m
Earnings per share6.05p
Cashflow per share20.75p
Cash per share5.24p

‘Cleaner’ TalkTalk set for success, says Deutsche Bank

Telecoms group TalkTalk (TALK) has adopted a ‘cleaner strategy’ that should give it a better chance of success, says Deutsche Bank.

Analyst Robert Grindle reiterated his ‘buy’ recommendation and target price of 230p on the stock, which was trading down 0.5%, or 0.9p, at 175p at the time of writing.

‘Our initiation last year flagged that TalkTalk should prove a beneficiary of UK regulatory tightening. This was prescient but the company has suffered from febrile broadband competition and the mobile growth opportunity is now viewed as too expensive and complex to pursue,’ he said.

Although Grindle said while this was ‘disappointing’, TalkTalk was now ‘cleaner’ while the ‘dividend millstone has been substantially eliminated’.

‘A more streamlined TalkTalk is also a cleaner partner for either a mobile network operator wishing to provide a convergence bundle or a fixed network operator wishing to fill its fibre capacity,’ he said.

Key stats
Market capitalisation£3,555m
No. of shares out456m
No. of shares floating447m
No. of common shareholdersnot stated
No. of employees1762
Trading volume (10 day avg.)2m
Turnover1,045m USD
Profit before tax191m USD
Earnings per share0.42 USD
Cashflow per share1.03 USD
Cash per share1.14 USD

Inmarsat: latest deal reiterates dominance, says Jefferies

Inmarsat’s (ISA) new deal with Latin American airline Avianca has reiterated the dominance of the global satellite company, according to Jefferies.

Analyst Giles Thorne retained his ‘buy’ recommendation and target price of £12.45 on the stock following the deal with Avianca to provide in-flight connectivity.

The shares were trading up 0.4%, or 3.5p, at 790p at the time of writing.

‘With the Avianca news… Inmarsat’s positive in-flight connectivity momentum remains undiminished,’ he said. ‘It has dominated ex-US market net adds since 2013 and has twice the market share of its nearest competitor.’

He said the ‘welcome revenue visibility’ comes at a ‘pertinent’ time as competitor ViaSat has complained Inmarsat is creating a monopoly.

Thorne was unconcerned by the ViaSat complaint, arguing it ‘appears to say more about ViaSat’s state than anything’.

Key stats
Market capitalisation£801m
No. of shares out500m
No. of shares floating342m
No. of common shareholdersnot stated
No. of employees6811
Trading volume (10 day avg.)2m
Turnover£834m
Profit before tax£75m
Earnings per share14.95p
Cashflow per share20.83p
Cash per share11.64p

Pets At Home too risky for the price, says Liberum

Shares in Pets At Home (PETSP) may have fallen by a third since July last year but they’re still not cheap enough for the current risk profile, says Liberum.

Analyst Adam Tomlinson reiterated his ‘sell’ recommendation and target price of 145p on the shares as he said the ‘downgrade cycle has accelerated’.Shares were trading down 0.6%, or 1p, at 160p at the time of writing.

‘Since we downgraded to ‘sell’ in July 2016, Pets’ shares have fallen 33%. The story has evolved as we expected, with significant price investment into its food/accessories offering now required to establish its competitiveness,’ he said.

The shares now trade on a price/earnings ratio of 12.2x, which Tomlinson does ‘not see as cheap enough for Pets’ current risk profile’.

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  • Domino's Pizza Group PLC (DOM.L)
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  • Capita PLC (CPI.L)
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  • Inmarsat PLC (ISA.L)
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  • Pets at Home Group PLC (PETSP.L)
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  • Talktalk Telecom Group PLC (TALK.L)
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