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The Expert View: Cineworld, Stagecoach and LSL

Our daily roundup of analyst commentary on shares, also including ZPG and RPC.

by Michelle McGagh on Nov 30, 2017 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£1,539m
No. of shares out274m
No. of shares floating192m
No. of common shareholdersnot stated
No. of employees9946
Trading volume (10 day avg.)1m
Turnover£798m
Profit before tax£169m
Earnings per share30.30p
Cashflow per share51.96p
Cash per share20.85p

Cineworld needs to find synergies with Regal bid, says Peel Hunt

Cineworld’s (CINE) £2.7 billion bid to take over US cinema chain Regal has hit the shares and Peel Hunt warned the deal would only be beneficial if enough synergies could be found.

Analyst Douglas Jack retained his ‘add’ recommendation and target price of 725p on the shares, which slumped 19.8% to 557p yesterday.

‘Cineworld has confirmed that it is in advanced discussions with Regal Entertainment Group, the second largest cinema operator in the US, and is considering a possible all-cash offer to acquire 100% of Regal at a price of $23 per share,’ he said.

‘This equates to paying 8.7 times earnings to buy into a very mature market, the accretion from which is highly dependent on synergies versus the scale of the rights issue.’

The deal would see Cineworld taking over a company four-times its size and acquiring 561 cinemas in the US with 7,315 screens.

Key stats
Market capitalisation£1,037m
No. of shares out573m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees39723
Trading volume (10 day avg.)1m
Turnover£3,941m
Profit before tax£229m
Earnings per share5.52p
Cashflow per share31.33p
Cash per share54.62p

Liberum upgrades Stagecoach on franchise negotiations

Liberum has upgraded Stagecoach (SGC) as it believes the risk of the bus and rail operator defaulting on the East Coast rail franchise has been removed.

Analyst Gerald Khoo upgraded his recommendation from ‘hold’ to ‘buy’ with a target price of 170p on the shares, which jumped 13% to 180.8p yesterday.

‘The problems and challenges at the East Coast rail franchise have weighed on Stagecoach’s rating,’ he said.

‘New plans by the Department for Transport to replace the franchise early, in 2020, and to negotiate revised terms to cover the period until then, are positive for Stagecoach. Details of the revised terms are still to be negotiated but we see them as being no worse to Stagecoach than at present.’

He added that ‘importantly, we believe the risk of the group defaulting on the franchise has been removed’ and the reduction in risk and uncertainty should improve confidence in the 7.5% dividend yield.

Key stats
Market capitalisation£269m
No. of shares out102.6m
No. of shares floating90.2m
No. of common shareholdersnot stated
No. of employees4,630
Trading volume (10 day avg.)0.15884m
Turnover£308m
Profit before tax£37m
Earnings per share48.98p
Cashflow per share58.08p
Cash per sharen/a

Numis downgrades LSL on share price gains

Numis has downgraded LSL Property Services (LSL) after share price rises but still thinks the company will be a ‘winner’ in a difficult market.

Analyst Chris Millington downgraded his recommendation from ‘buy’ to ‘add’ with a target price of 308p after shares pushed up 20% in the last few months. They rose 1% to 262p yesterday.

‘LSL continues to make good progress against a difficult market backdrop,’ he said. ‘We have upgraded our estimate by 3%, taking total upgrades for 2017 profits to 15% over the past six months. This is against a backdrop of downgrades elsewhere in the traditional estate agency sector and in our view shows that LSL is emerging as one of the winners.’

He added that with recent share price improvements LSL ‘is only trading on a 2017 price/earnings of 9.3 times and a yield of 4.3%’.

Key stats
Market capitalisation£97m
No. of shares out30m
No. of shares floating22m
No. of common shareholdersnot stated
No. of employeesn/a
Trading volume (10 day avg.)n/a
Turnover£1.2m
Profit before tax£640,000
Earnings per share-1.39p
Cashflow per sharen/a
Cash per share1.98p

Cross-selling opportunity at ZPG, says Jefferies

ZPG (ZPG), which owns property search engine Zoopla, has had a good start to the year and bagged another business, meaning greater opportunity for cross-selling, says Jefferies.

Analyst Sam Cullen retained his ‘buy’ recommendation and target price of 542p on the shares after full-year 2017 results were ‘in-line with expectations’. The shares fell 6.8% to 321.7p yesterday.

ZPG also announced the acquisition of Calcasa, the leading property data company in the Netherlands.

‘Much of the appeal of ZPG is the cross-sell opportunity,’ said Cullen. ‘Within property there are five product groups and the average customer currently takes 1.4 products - up 27% year-on-year – but still with plenty of opportunity ahead.

‘Turning to uSwitch, Zoopla is now delivering more than 25% of the mortgage traffic and unpaid traffic now accounts for the majority of visits to uSwitch.’

Key stats
Market capitalisation£3,715m
No. of shares out413m
No. of shares floating400m
No. of common shareholdersnot stated
No. of employees20129
Trading volume (10 day avg.)2m
Turnover£2,747m
Profit before tax£454m
Earnings per share36.80p
Cashflow per share82.58p
Cash per share62.21p

RPC in ‘peak condition’, says Hargreaves Lansdown

Plastics manufacturer RPC Group (RPC) has shaken off concerns about poor performance and Hargreaves Lansdown believes its strong grip on its finances mean it will exit 2017 ‘in peak condition’.

Acquisitions pushed up half-year revenues to £1.9 billion, representing 45% growth at constant exchange rates. Cost savings were reflected in a 47% increase in adjusted operating profits to £214.7 million. The shares fell 6.5% to 902p yesterday.

Analyst Nicholas Hyett said: ‘After concerns that deals were masking poor performance, the successful integration of recent acquisitions and decline in exceptional costs is key to proving to sceptics that the RPC strategy is delivering value.’

Although the management team promised shareholders it would not make any more acquisitions this year as it needs to focus on integrating recent purchases, Hyett said talk of consolidating the European plastics market showed RPC was ‘champing at the bit’.

‘We wouldn’t be surprised if RPC returned to the mergers and acquisitions trail as soon as it can next year, and we’d support that move. But in the meantime the financial rigor being imposed on the group should mean it exits 2017 in peak condition,’ said Hyett.

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  • Cineworld Group PLC (CINE.L)
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  • Stagecoach Group PLC (SGC.L)
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  • LSL Property Services PLC (LSL.L)
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  • ZPG PLC (ZPG.L)
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  • RPC Group PLC (RPC.L)
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