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The Expert View: Carnival, Hargreaves Lansdown and ITV
Our daily roundup of analyst commentary on shares, also including Pearson and Home Retail.
by Michelle McGagh on Feb 04, 2016 at 05:00
Carnival shares sinking but life jackets not needed yet
Cruise ship operator Carnival (CCL) has been caught up in the sell-off in this sector but its looks like an over-reaction to Numis analyst Wyn Ellis.Ellis retained his ‘hold’ recommendation and target price of £36.00 on the shares, which were trading at £32.43 yesterday, down 7.7% since Tuesday.
‘Royal Caribbean reported full-year 2015 results [on Tuesday] following which cruise company shares solid off: Royal Caribbean down 15%; Carnival down 7.9%; and Norwegian Cruise Lines down 8.6%. We believe these falls look like a classic over-reaction but we are in no rush to buy the shares,’ he said.
‘At this stage, however, we maintain our “hold” on Carnival for three key reasons: there is danger that the Zika virus leads to a short-term hiatus in bookings especially given the importance of the Caribbean; the sector is still vulnerable to consumer concern about terrorist attacks, and despite the bullish noises coming out of the cruise companies the outlook in China/Asia remains uncertain. We acknowledge though that the rating is now beginning to look attractive on current forecasts.’
Analysts ‘pull back’ on Hargreaves Lansdown 2016 assumptions
Shore Capital analyst Paul McGinnis has ‘pulled back’ his full year assumptions for online stockbroker Hargreaves Lansdown (HRGV).
McGinnis retained his ‘hold’ recommendation but does not have a target price on the stock following interim results. The shares fell 2.8% to £12.80 yesterday.
‘Hargreaves Lansdown has reported results for the six months to 30 June which are slightly light compared to a company-compiled consensus. Revenues were up 10% year-on-year at £158.8 million, adjusted profit before tax was up 6% at £108.1 million, generating earnings per share up 9% at 18.3p. The dividend was increased by 7% to 7.8p,’ he said.
‘Post period end the FTSE All Share fell 3.1% in January 2016 which would take the seventh month movement for Hargreaves to -6.6%. Therefore, our last published June 2016 full-year assumption for market movements of 0% could be said to be baking in a strong rally from February to June. As ever, we’re sure investors will take their own view on this metric but we are inclined to pull back our assumptions for the current year and will process this as lower platform fee revenue as we update the model.’
Home Retail Group: break-up nears completion after Sainsbury’s bid
A 161.3p per share bid by Sainsbury’s seems to conclude the break-up of Home Retail Group (HOME).
Deutsche Bank analyst Warwick Okines retained his ‘hold’ recommendation and increased the target price from 150p to 155p. The shares dipped 1% to 151.5p yesterday.
‘Sainsbury’s announced a possible offer for Home Retail Group equivalent to 161.3p per share. This appears to conclude the break-up of the group, following the announcement of the conditional sale of Homebase to Wesfarmers,’ he said.
‘We have adjusted our forecasts for the sale of Homebase, assuming a £200 million special dividend, which explains the cut to our earnings forecasts. Our target price rises from 150p to 155p as we assume a 90% probability that the break-up takes place.’
He added: ‘The main upside and downside risks now relate to mergers and acquisitions. More fundamentally, the upside risks relate to stronger sales growth, since Home Retail Group is highly operationally geared. Downside risks include intensive price competition in consumer electricals and the inability to mitigate operating cost inflation.’
‘Leaner’ ITV set for more growth
Further margin expansion is expected at broadcaster ITV (ITV) after it delivers on its five-year plan.
Jefferies analyst Lisa Hau started her coverage of the stock with a ‘buy’ recommendation and target price of 310p on the shares, which dipped 1.6% to 263.7p yesterday.
‘ITV is set to benefit from another solid advertising growth year which is reinforced by a robust sporting schedule and mass audience reach,’ she said.
‘There is scope for consensus to rise on the back of announced acquisitions and national advertising revenue growing better than expected. ITV offers a cyclical play and a rerating driven by its transformation.’
She added: ‘ITV has delivered on its five-year transformational plan and is now moving into the next phase of growth.
‘The company is leaner and broadcast operational leverage is high. We expect further margin expansion to come from online and an improving profile at studios.’
Pearson divi at risk
Educational publisher Pearson (PSON) has become a ‘dividend risk story’ unless it sells its stake in Penguin Random House.
Liberum analyst Ian Whittaker retained his ‘sell’ recommendation and target price of 450p on the stock, comparing it to miner BHP Billiton in terms of dividend risk. Pearson fell 6.5p to 766p yesterday.
‘S&P’s downgrade of BHP Billiton credit rating to ‘A’ and on negative credit watch implies another downgrade is imminent if BHP doesn’t change its current capital allocation priorities thus implying a risk to what is currently a high dividend yield story facing significant problems,’ he said.
‘Pearson is another such dividend risk story and, with our forecasts indicating Pearson will not be able to cover its dividend over the medium term, we see a strong risk that Pearson will have to reduce or even eliminate its dividend – which we think it should – unless it sells its 47% stake in Penguin Random House, which would result in 20%-25% earnings dilution.’
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Look up the shares
- Carnival PLC (CCL.L)
- ITV PLC (ITV.L)
- Pearson PLC (PSON.L)
- Hargreaves Lansdown PLC (HRGV.L)
- Home Retail Group PLC (HOME.L)