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The Expert View: Debenhams, Croda and MJ Gleeson

Our daily roundup of analyst commentary on shares, also including Greencore and Vectura.

by Michelle McGagh on Jan 05, 2018 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£372m
No. of shares out1,228m
No. of shares floating870m
No. of common shareholdersnot stated
No. of employees8431
Trading volume (10 day avg.)10m
Turnover£2,335m
Profit before tax£230m
Earnings per share3.97p
Cashflow per share12.88p
Cash per share3.26p

Peel Hunt slashes Debenhams target on Xmas woes

Peel Hunt has downgraded Debenhams (DEB) and slashed its target price after the retailer delivered a profit warning following a difficult Christmas period.

Analyst John Stevenson downgraded his recommendation from ‘hold’ to ‘sell’ and slashed his target price from 55p to 25p. The shares tumbled 16% to 39.9p yesterday.

‘Predictably, Debenhams has delivered the first retail profit warning of the year, typified by volatile UK trading and high levels of discounting,’ he said.

‘This isn’t a retailing or macro issue, this is all about Debenhams; the tightening in consumer spending and foreign exchange pressure is tough enough to leave the more challenged retailers facing margin decline and cost growth, which they are unable to mitigate and trade out of; we believe the consumer proposition is simply not compelling enough.’

He added that opportunities for recovery in the retail sector centred on companies with strong balance sheets, growth in e-commerce and structural growth, arguing Debenhams did not fit into these camps.

‘We downgrade forecasts and expect the dividend to be cut while Debenhams starts to accelerate its investment plans,’ said Stevenson.

Key stats
Market capitalisation£5,832m
No. of shares out131m
No. of shares floating129m
No. of common shareholdersnot stated
No. of employees4273
Trading volume (10 day avg.)m
Turnover£1,244m
Profit before tax£347m
Earnings per share146.90p
Cashflow per share184.32p
Cash per share46.48p

Jefferies downgrades Croda after rally

Jefferies has downgraded chemicals company Croda (CRDA) after a recent rally in the share price.

Analyst Laurence Alexander downgraded his recommendation from ‘buy’ to ‘hold’ and increased his target price from £45 to £47. The shares edged 13p lower to £44.48 yesterday.

He said the recent rally was consistent with Croda’s tendency to outperform when oil prices and consumer confidence were both improving.

‘The recent rally in Croda shares more than amply discounts, in our view, improving free cashflow generation in 2018-2019, balance sheet flexibility, visibility on key earnings per share levers - especially product mix, vertical integration and taxes,’ he said.

‘At these levels, the risk/reward appears relatively balanced, and we downgrade to “hold”.’

Key stats
Market capitalisation£435m
No. of shares out55m
No. of shares floating31m
No. of common shareholdersnot stated
No. of employees405
Trading volume (10 day avg.)m
Turnover£160m
Profit before tax£34m
Earnings per share48.31p
Cashflow per share49.80p
Cash per share62.92p

Gleeson share price premium is justified, says Liberum

A trading statement from housebuilder MJ Gleeson (GLEG) showed it ended the second half of the year on a strong footing, which Liberum says justifies the share premium.

Analyst Charllie Campbell retained his ‘buy’ recommendation and increased his target price from 830p to 844p on news the homes division sold 31% more units, comfortably beating previous guidance of more than 15%.

‘The shares trade at a justified premium to the sector - 14.1x 2018 earnings versus 10.1x - given premium growth and better than average cash characteristics due to low land costs,’ he said.

‘Homes appears on schedule for a doubling of output within five years of 2017. Demand remains strong for both homes and strategic land.’

The shares were up 7p at 799p yesterday.

Key stats
Market capitalisation£1,585m
No. of shares out706m
No. of shares floating701m
No. of common shareholdersnot stated
No. of employees15795
Trading volume (10 day avg.)3m
Turnover£2,320m
Profit before tax£190m
Earnings per share1.86p
Cashflow per share12.63p
Cash per share2.81p

Barclays initiates coverage on Greencore

Barclays has initiated coverage of food group Greencore (GNC), which it believes will benefit from increased outsourcing of manufacturing.

Analyst Gaurav Jain initiated coverage with an ‘overweight’ recommendation and target price of 253p on the shares, which rose 1.8p to 223p yesterday.

‘Greencore is the leading original design manufacturer of fresh food sold in the UK, with a particular dominance in ready-to-go sandwiches,’ he said. ‘In the US it is poised to benefit as branded food companies increasingly outsource manufacturing.

He added that the stock was trading at a 10% to 30% discount to peers, despite offering long-term revenue growth of 4-6%, versus peer growth of 2-4%.

Key stats
Market capitalisation£815m
No. of shares out679m
No. of shares floating598m
No. of common shareholdersnot stated
No. of employees453
Trading volume (10 day avg.)5m
Turnover£127m
Profit before tax£-40m
Earnings per share-4.3p
Cashflow per sharen/a
Cash per share13.64p

Numis backs Vectura’s new investment strategy

A trading update from biotech firm Vectura (VEC) has outlined its refocused investment strategy, which Numis said should see it become an attractive partner of choice for other companies.

Analyst Stefan Hamill retained his ‘buy’ recommendation and target price of 170p on the shares after the company said it planned to reduce its overall risk profile. It will do this by focusing on internal development and stop work on higher risk, unproven targets where it will instead seek partners to work alongside.

‘We continue to see the company as an attractive partner of choice in targeting the lung, with world-leading inhaled formulation and device capabilities and see deals coming in time,’ he said.

The shares rose 1.8% to 121.9p yesterday.

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  • Debenhams PLC (DEB.L)
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  • Croda International PLC (CRDA.L)
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  • MJ Gleeson PLC (GLEG.L)
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  • Greencore Group PLC (GNC.L)
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  • Vectura Group PLC (VEC.L)
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