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The Expert View: Capita, Merlin Entertainment & Ashtead

Out daily roundup of analyst commentary on shares, including Ocado and Ted Baker. 

by Michelle McGagh on Jun 14, 2017 at 05:01

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Key stats
Market capitalisation£4,229m
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

Jefferies refuses to get carried away with Capita

Capita (CPI) has released an ‘extremely mixed’ interim management statement meaning Jefferies cannot get excited about the ‘modest upgrade’ to first half guidance despite the dramatic rebound in the share price.

Analyst Kean Marden retained his ‘hold’ recommendation and target price of 550p on the outsourcing giant, which yesterday soared 15% to close 83.5p higher at 634p after expressing confidence in its prospects after a string of profit warnings.

‘[The] interim management statement is extremely varied in tone,’ said Marden.

‘Contract wins are subdued, the Defence Infrastructure Organisation contract may end in mid-2019, the Capita Asset Services disposal has yet to be completed and there is no chief executive announcement,’ he said.

‘The statement neglects to mention the balance sheet and the tight June covenant test,’ the analyst added.

However, he said the adoption of the IFRS15 accounting standard would have a ‘modestly positive impact on full-year 2017 profits, which results in a modest upgrade to H1 2017 guidance’.

Key stats
Market capitalisation£4,975m
No. of shares out1,016m
No. of shares floating694m
No. of common shareholdersnot stated
No. of employees19489
Trading volume (10 day avg.)2m
Turnover£1,457m
Profit before tax£211m
Earnings per share20.72p
Cashflow per share33.59p
Cash per share21.17p

Terror attacks could deter visitors, says Merlin

Alton Towers and Madam Tussauds operator Merlin Entertainments (MERL) warned investors it had seen a fall in demand from domestic tourists after the recent attacks in London and Manchester and said it could see a decline in overseas visitors this summer.

In an update for investors at its AGM the world’s second biggest visitor attractions group behind Walt Disney said trading this year had been broadly in line with expectations. The weaker pound had attracted more foreign tourists at the start of the year but the Westminster attacks in March had reduced domestic demand for its London Eye and Sea Life aquarium attractions. The attacks in Manchester on 22 May and on London Bridge on 3 June had further hit the number of day trippers.

‘Given the typical lag between holiday bookings and visitation, we are also cautious on trends in foreign visitation over the coming months,’ the firm said. Its shares fell 2.3% or 11p to 491p.

Chief executive Nick Varney said he was confident about the company’s underlying growth prospects although the longer-term impact of the terror attacks was unclear.

Hargreaves Lansdown analyst Nicholas Hyett said: ‘The tragic events in Manchester and London do seem to be affecting visitor numbers to its attractions. Exactly how significant that impact proves, remains to be seen.’

Key stats
Market capitalisation£1,728m
No. of shares out630m
No. of shares floating418m
No. of common shareholdersnot stated
No. of employees10930
Trading volume (10 day avg.)4m
Turnover£1,271m
Profit before tax£12m
Earnings per share1.96p
Cashflow per share11.90p
Cash per share7.70p

Numis positive on Ocado debt plans

Ocado (OCDO) has announced plans for a debt issue that will lower the cost and extend the duration of its borrowing, allowing it to continue its UK expansion, says Numis Securities.

Analyst Andrew Wade retained his ‘buy’ recommendation and target price of 400p on the stock on news of the potential financing that will allow the online supermarket to extend the maturity of its debt profile as its revolving credit facility expires in 2019.

Wade said the group would also be able to ‘take advantage of its increased scale and profitability, and the historically low financing costs’ to ‘achieve an overall increase in its funding headroom’.

‘We see this as good news,’ he said. ‘The statement notes that the proceeds of the offering, consistent with the current revolving credit facility, will be used to support the continued growth of the UK retail capacity, and enable further improvements to the platform operation.’

The shares added 4.3p to close 1.6% higher at 275p.

Key stats
Market capitalisation£7,988m
No. of shares out499m
No. of shares floating482m
No. of common shareholdersnot stated
No. of employees13767
Trading volume (10 day avg.)2m
Turnover£2,546m
Profit before tax£408m
Earnings per share80.97p
Cashflow per share174.69p
Cash per share2.58p

Look to the upside at Ashtead, says Liberum

With full-year results out for Ashtead (AHT), the market can finally focus on the ‘long-term upside’ being offered by the tool hire company, says Liberum.

Analyst Rahim Karim reiterated his ‘buy’ recommendation and target price of £19.40. The shares shed 37p or 2.2% to £16.04 on Tuesday.

‘With the company delivering an in-line set of full-year 2017 results, we expect the market to focus on the long-term upside offered by increased rental penetration in the US market,’ he said.

‘Our detailed analyst of Project 2021 suggests that it is well placed to deliver 9% per annum underlying revenue growth and further improve its sector leading margin.’

Karim added that as the growth is funded internally it will provide management ‘with significant optionality to further accrete shareholder value’.

Key stats
Market capitalisation£1,097m
No. of shares out44m
No. of shares floating28m
No. of common shareholdersnot stated
No. of employees3166
Trading volume (10 day avg.)m
Turnover£531m
Profit before tax£47m
Earnings per share104.53p
Cashflow per share151.59p
Cash per share48.45p

Peel Hunt: Ted Baker still in fashion but fairly valued

A trading update from designer brand Ted Baker (TED) showed growth across all channels and Peel Hunt believes its long-term growth prospects are ‘attractive’ although the shares are fairly valued.

Analyst John Stevenson retained his ‘hold’ recommendation but reduced the target price from £31 to £27.50 after the group said it was well placed to meet expectations this year, despite the economic uncertainty and the squeeze on consumer spending.

Total retail sales for the 19 weeks from 29 January to 10 June rose 14.3%, or 8.4% on a constant currency basis, with Stevenson pointing to growth in both e-commerce and in store.

‘Ted is one of the rare retailers for which online is driving incremental revenue growth for the business from both new and existing customers,’ he said.

‘Long-term growth prospects remain attractive, although forecasts remain unchanged and trading on a full-year 2018 price earnings ratio of 18.8 times, the shares look fairly valued to us.’ The shares gained 3%, or 73p, at £24.98.

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  • Capita PLC (CPI.L)
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  • Merlin Entertainments PLC (MERL.L)
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  • Ocado Group PLC (OCDO.L)
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  • Ashtead Group PLC (AHT.L)
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  • Ted Baker PLC (TED.L)
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