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The Expert View: Capita, SSE and Antofagasta

Our daily roundup of analyst commentary on shares, also including Cairn Energy and Britvic.

by Michelle McGagh on Feb 01, 2018 at 05:00

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Key stats
Market capitalisation£1,266m
No. of shares out667m
No. of shares floating661m
No. of common shareholdersnot stated
No. of employees74755
Trading volume (10 day avg.)4m
Turnover£4,898m
Profit before tax£641m
Earnings per share5.55p
Cashflow per share44.20p
Cash per share178.57p

The Share Centre: bargain hunters should stay clear of Capita

Capita (CPI) is the latest outsourcing group to get itself into trouble and is being forced to restructure but The Share Centre said this isn’t a chance to snap up a bargain.

The shares plunged 46% to 187p yesterday after the group announced a rights issue, suspended its dividend and said it would sell assets to plug its pension deficit, as it delivered another profits warning.

Analyst Helal Miah said despite the share price fall, investors should not be tempted.

‘We warned bargain hunters to look elsewhere and after the dramatic falls in the share price… we still maintain that view,’ he said.

‘The sector in general hasn’t had a great few years and this has been exacerbated by Brexit where contract awards have been delayed due to Brexit uncertainty.

‘Given the political environment and fiasco around Carillion, it is only right that contributions to the pension fund are prioritised which is currently in deficit, last standing at a £381 million shortfall.’

Key stats
Market capitalisation£13,302m
No. of shares out1,014m
No. of shares floating1,009m
No. of common shareholdersnot stated
No. of employees21157
Trading volume (10 day avg.)4m
Turnover£29,038m
Profit before tax£2,907m
Earnings per share158.19p
Cashflow per share282.25p
Cash per share140.51p

Hargreaves waits to see outcome on SSE divi

Energy provider SSE (SSE) confirmed earnings per share will come in above consensus but there are still questions about the dividend after it splits off its UK retail business, says Hargreaves Lansdown.

A third quarter trading update confirmed the earnings per share will come in around 116-120p and while it is lower than last year, it is more than expected. The shares rose 1.7% to £13.12 yesterday.

Analyst George Salmon said there had been a ‘solid delivery so far this year’ that helped to upgrade profit forecasts.

‘However, the main question is what will SSE’s dividend look like after it splits off the cash generative UK retail business,’ he said. ‘Shareholders will have an interest in the new Npower-SSE retail entity, but it remains to be seen if their dividend return from both groups will exceed what they’re currently getting.’

Salmon added that in recent years the dividend hadn’t always been covered ‘so there’s a chance the group could use the deal as an opportunity to rebase the payment down’.

Key stats
Market capitalisation£9,209m
No. of shares out986m
No. of shares floating336m
No. of common shareholdersnot stated
No. of employees5427
Trading volume (10 day avg.)3m
Turnover2,560m USD
Profit before tax1,076m USD
Earnings per share0.09 USD
Cashflow per share0.54 USD
Cash per share1.47 USD

Peel Hunt factors in lower profits at Antofagasta

Chilean copper miner Antofagasta (ANTO) is facing lower production than expected and therefore lower profits, says Peel Hunt.

Analyst Peter Mallin-Jones retained his ‘hold’ recommendation but reduced the target price from £10.50 to 950p. The shares were trading at 934p yesterday.

‘Management’s comments on its likely 2018 output and site-by-site guidance suggest to us our prior…estimate was too high,’ he said.

He said a 2% trim to the output and a ‘resetting’ of inflation expectations upwards ‘means a 16% cut to our 2018 estimates and 5% to 2019 and 2020’.

‘These changes mean a 100p reduction to our target price,’ said Mallin-Jones. ‘Even at spot copper prices and a six times target multiple we would see only a £10.70 enterprise value/earnings-based valuation, suggesting Antofagasta shares look fairly valued without a material kick-up in copper prices.’

Key stats
Market capitalisation£1,215m
No. of shares out583m
No. of shares floating578m
No. of common shareholdersnot stated
No. of employees156
Trading volume (10 day avg.)2m
Turnoverm USD
Profit before tax-84m USD
Earnings per share-0.12 USD
Cashflow per share-0.11 USD
Cash per share0.41 USD

Indian tax woes mean Cairn trades at a discount, says Barclays

Oil explorer Cairn Energy (CNE) is trading at a ‘marked’ discount to many of its exploration and production sector peers, says Barclays.

Analyst James Hosie retained his ‘overweight’ recommendation and increased the target price from 265p to 280p on the stock, which was trading down 1.4%, or 3p, at 210p at the time of writing.

The discount is mostly due to plans by the Indian government to hit the company with a retrospective tax going back a decade, according to Hosie.

‘Cairn is at a marked discount to many of its exploration and production peers,’ he said. ‘We believe the uncertainty created by its Indian tax arbitration is the principal driver for this and the final ruling, due before year-end, could be a major catalyst for the stock.

‘If arbitration rules in Cairn’s favour, we would expect management to enforce the ruling and seek to divest the asset, returning a significant portion of the proceeds to equity investors. The downside risk is that Cairn effectively loses claim to its Indian asset.’

He added that the company was ‘well positioned to weather a negative outcome’

Key stats
Market capitalisation£1,945m
No. of shares out264m
No. of shares floating259m
No. of common shareholdersnot stated
No. of employees4848
Trading volume (10 day avg.)1m
Turnover£1,541m
Profit before tax£248m
Earnings per share42.23p
Cashflow per share64.66p
Cash per share31.27p

Britvic shares will remain weak, says Shore Capital

A ‘lack lustre’ update from Britvic (BVIC) only adds to the risks at the soft drinks company and Shore Capital expects the shares to remain weak.

Analyst Phil Carroll reiterated his ‘sell’ recommendation on the stock after a first quarter update reported group sales were up 3.3% to £337.2 million but when the acquisition of Brazilian group Bela Ischia was excluded, growth was just 0.7%.

‘Overall, quite a lacklustre update from Britvic albeit it did face some challenging comparatives in some divisions. We continue to see uncertainty as a key risk to the investment case in the short term. This is unlikely to be helped by the first quarter 2018 trading performance,’ he said.

‘Furthermore, we note the announcement of more material exceptional costs. This is again unwelcome news in relation to the balance sheet.’

He added that ‘we continue to expect shares to be weak in the short term and therefore reiterate our “sell” recommendation’.

The shares were down 6.4% at 734p yesterday.

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Look up the shares

  • Capita PLC (CPI.L)
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  • SSE PLC (SSE.L)
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  • Antofagasta PLC (ANTO.L)
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  • Cairn Energy PLC (CNE.L)
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  • Britvic PLC (BVIC.L)
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