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The Expert View: Centrica, HSBC and Go-Ahead

Our daily roundup of analyst commentary on shares, also including William Hill and Lancashire.

by Michelle McGagh on Feb 19, 2016 at 05:00

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Key stats
Market capitalisation£10,548m
No. of shares out5,070m
No. of shares floating5,064m
No. of common shareholdersnot stated
No. of employees37530
Trading volume (10 day avg.)16m
Turnover£29,408m
Profit before tax£-1,012m
Earnings per share-20.15p
Cashflow per share45.46p
Cash per share7.75p

*Correct as at 18 Feb 2016

Centrica has divi covered due to strong cash flow

British Gas owner Centrica (CNA) is expected to weather low commodity prices thanks to its healthy operating cash flow.

Jefferies analyst Peter Atherton retained his ‘buy’ recommendation and target price of 250p. The shares rose 6.9% to 207.4p yesterday.

‘Full-year 2015 results in-line with expectations with strong operating cash flow generation. [The] announcement suggests operating cash flow for 2016/18 will remain in the c.£2 billion range even with current low commodity prices,’ he said.

While the full-year dividend is down on the previous year, payouts are now covered 1.4 times.

‘The key takeaway from the 2015 results is that the dividend will remain covered by the operating cash flow even at current low commodity prices,’ said Atherton.

‘The main threat to this remains the outcome of the ongoing Competition and Markets Authority energy market investigation, with provisional results in March 2016.’

Key stats
Market capitalisation£1,037m
No. of shares out43m
No. of shares floating39m
No. of common shareholdersnot stated
No. of employees26160
Trading volume (10 day avg.)m
Turnover£3,215m
Profit before tax£52m
Earnings per share119.53p
Cashflow per share318.07p
Cash per share1,404.99p

*Correct as at 18 Feb 2016

Go-Ahead hits a bump in the road

Caution abounds around train and bus operator Go Ahead (GOG) as trading remains tough in the bus division.

Liberum analyst Gerald Khoo retained his ‘hold’ recommendation and target price of £27.50 on the shares, which jumped 6% to £23.84 yesterday.

‘The results were broadly in line with our forecasts, although somewhat flattered by the reversal of a past impairment in the rail division,’ he said.

‘Trading conditions in bus appear to remain tough, with headwinds from demand in the regions and roadworks/congestion in London and Oxford. Management’s full-year expectations are unchanged, which should see consensus estimates underpinned.

‘We remain cautious on the outlook and recommendation remains “hold”.’

Key stats
Market capitalisation£88,091m
No. of shares out19,686m
No. of shares floating19,626m
No. of common shareholdersnot stated
No. of employees259834
Trading volume (10 day avg.)37m
Turnover35,648m USD
Profit before tax9,175m USD
Earnings per share0.48 USD
Cashflow per share0.62 USD
Cash per share4.91 USD

*Correct as at 18 Feb 2016

HSBC: forecasts reduced ahead of results

HSBC (HSBA) is set to deliver its results on 22 February and Deutsche Bank analyst David Lock still has some concerns.

Lock retained his ‘hold’ recommendation and reduced the target price from 580p to 500p. The shares fell 1.8% to 448.9p yesterday.

‘We forecast stated profit before tax for the quarter of $1.9 billion and adjusted profit before tax of $3.1 billion with $80 million of UK customer redress and $1.1. billion of restructuring and related costs,’ he said.

‘Key issues for HSBC remain the outlook for revenues amidst a more difficult market environment , cost reductions – we remain cautious given past performance and potential revenue offset – and capital progression.

‘We have rebuilt our HSBC model, which has triggered material negative changes to forecasts.’

He added that key upside risks include ‘improvement in emerging markets outlook, lower-than-expect loan losses, better-than-expected outcomes for regulation, [and] lower costs’ while key downside risks are ‘regulatory change, legacy liabilities, and a slowdown in emerging markets’.

Key stats
Market capitalisation£1,238m
No. of shares out200m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees103
Trading volume (10 day avg.)m
Turnover535m USD
Profit before tax160m USD
Earnings per share0.81 USD
Cashflow per share0.90 USD
Cash per share1.12 USD

*Correct as at 18 Feb 2016

Lancashire shares undervalued

Lancashire (LRE), the specialist insurer that focuses on aviation, marine and terrorism risk, has reported ‘remarkable’ performance despite disappointment from some about the lack of special dividend.

Shore Capital analyst Eamonn Flanagan reiterated his ‘buy’ recommendation but does not have a target price on the shares, which fell 12p to 617p yesterday.

‘Lancashire reported 2015 results which were comfortably ahead of both our and the market’s expectations in respect of profits and net asset value,’ he said. ‘However, there appeared to be some in the market that had expected another special dividend despite pretty clear indications from the group that this was unlikely… the overall performance of Lancashire in 2015 was quite remarkable, in our view.’

Flanagan said the strength of the firm’s underwriting and capital discipline made it a target for ‘corporate predators’ and the shares were undervalued.

‘Trading at c.1.8x our 2016 net tangible asset value of 355p with a c.7.8 % forward yield we view the shares as undervalued,’ he said.

Key stats
Market capitalisation£3,347m
No. of shares out885m
No. of shares floating882m
No. of common shareholdersnot stated
No. of employees16078
Trading volume (10 day avg.)3m
Turnover£1,609m
Profit before tax£206m
Earnings per share23.41p
Cashflow per share36.94p
Cash per share25.33p

*Correct as at 18 Feb 2016

William Hill to pick up momentum in 2016

Bookmaker William Hill (WMH) is expected to restore momentum this year after a period of suffering.

Numis analyst Ivor Jones retained his ‘add’ recommendation and target price of 425p on the shares, which dipped 1.4% to 377.6p yesterday.

‘It is a good job, in our view, that William Hill made a fairly full trading statement on 14 January. This gave it the opportunity to get into the public domain some management changes and an acknowledgement that some key product launches had not gone to plan,’ he said.

‘As a result, the prelims next week should give management a platform from which to deliver a positive forward-looking message.’

Jones added: ‘We believe that momentum will be restored in 2016 after a period of suffering from self-inflicted wounds as well as tough changes to regulation and duty. However, it may take a while to convince investors that the management team is stable, the product is competitive and the Australian business is finally on the right track.’

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  • Centrica PLC (CNA.L)
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  • William Hill PLC (WMH.L)
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  • Go-Ahead Group PLC (GOG.L)
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  • Lancashire Holdings Ltd (LRE.L)
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  • HSBC Holdings PLC (HSBA.L)
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