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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

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£24,885m
No. of shares out772m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees91300
Trading volume (10 day avg.)1m
Turnover10,891m USD
Profit before tax1,218m USD
Earnings per share1.56 USD
Cashflow per share3.01 USD
Cash per share1.25 USD

*Correct as at 3 Feb 2016

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.’

Key stats
Market capitalisation£6,033m
No. of shares out474m
No. of shares floating295m
No. of common shareholdersnot stated
No. of employees910
Trading volume (10 day avg.)1m
Profit before tax£157m
Earnings per share33.07p
Cashflow per share34.12p
Cash per share44.29p

*Correct as at 3 Feb 2016

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.’

Key stats
Market capitalisation£1,232m
No. of shares out813m
No. of shares floating758m
No. of common shareholdersnot stated
No. of employees46589
Trading volume (10 day avg.)8m
Profit before tax£72m
Earnings per share8.95p
Cashflow per share25.94p
Cash per share41.71p

*Correct as at 3 Feb 2016

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.’

Key stats
Market capitalisation£10,585m
No. of shares out4,025m
No. of shares floating3,553m
No. of common shareholdersnot stated
No. of employees4559
Trading volume (10 day avg.)10m
Profit before tax£466m
Earnings per share11.54p
Cashflow per share14.04p
Cash per share7.38p

*Correct as at 3 Feb 2016

‘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.’

Key stats
Market capitalisation£6,197m
No. of shares out822m
No. of shares floating812m
No. of common shareholdersnot stated
No. of employees40876
Trading volume (10 day avg.)6m
Profit before tax£243m
Earnings per share29.93p
Cashflow per share79.20p
Cash per share67.18p

*Correct as at 3 Feb 2016

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)
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  • Pearson PLC (PSON.L)
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  • Hargreaves Lansdown PLC (HRGV.L)
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  • Home Retail Group PLC (HOME.L)
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