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The Expert View: DMGT, Greene King and Go-Ahead

Our daily roundup of analyst commentary on shares, also including McColl's and Auto Trader.

by Michelle McGagh on Dec 01, 2017 at 00:01

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Key stats
Market capitalisation£1,991m
No. of shares out373m
No. of shares floating262m
No. of common shareholdersnot stated
No. of employees10205
Trading volume (10 day avg.)1m
Turnover£1,753m
Profit before tax£361m
Earnings per share36.53p
Cashflow per share68.56p
Cash per share23.72p

Numis cuts DMGT estimates ahead of difficult year

Daily Mail owner DMGT (DMGOa) is set for a year of transformation in 2018 that will have an impact on earnings as it faces another difficult year, says Numis.

Analyst Gareth Davies retained his ‘buy’ recommendation and target price of 905p on the stock, which tumbled 21.7% to 550p yesterday.

The newspaper group warned of another ‘challenging year’ but Davies maintained there were ‘no major divisional surprises’ and that the ‘balance sheet has strengthened materially’.

‘Management outline their strategic vision for the group as well as the implementation of a “performance improvement programme”, as such 2018 is seen as a year of transition,’ he said. ‘To reflect investment, disposals and details 2018 guidance we reduce our 2018 profit before tax and earnings per share to £180 million and 42p - previously £222 million and 52.9p.’

Key stats
Market capitalisation£3,234m
No. of shares out962m
No. of shares floating911m
No. of common shareholdersnot stated
No. of employees824
Trading volume (10 day avg.)4m
Turnover£311m
Profit before tax£212m
Earnings per share15.60p
Cashflow per share16.40p
Cash per share0.82p

Peel Hunt initiates on Auto Trader with a ‘buy’

Peel Hunt has initiated coverage of car classified website Auto Trader (AUTO) after the share derated on concerns about weakness in the car sales market.

Analyst Jessica Pok initiated coverage with a ‘buy’ recommendation and target price of 400p on the shares, which fell 0.5% to 335.8p yesterday.

‘Auto Trader’s shares have recently derated alongside other auto retail stocks due to weakness in new car registrations,’ she said.

‘In our view, the fundamentals of the business continue to be strong. The recent weakness in the share price represents a buying opportunity with the upside potential of 19%.’

Pok added that despite weakness in new car sales, used car transactions have ‘held up well’.

‘Next year, we expect used car transactions to fall by only 1%, therefore we expect listings on Auto Trader to be resilient as dealers look to spend more to market their stock aggressively,’ she said.

Key stats
Market capitalisation£667m
No. of shares out43m
No. of shares floating39m
No. of common shareholdersnot stated
No. of employees29000
Trading volume (10 day avg.)m
Turnover£3,481m
Profit before tax£218m
Earnings per share207.09p
Cashflow per share418.37p
Cash per share1,370.12p

Jefferies: Go-Ahead unfairly priced

Jefferies believes the Go-Ahead (GOG) share price reflects unfairly ‘pessimistic’ sentiment given the bus and rail group is expecting full-year results to match forecasts.

Analyst Joe Spooner retained his ‘buy’ recommendation and target price of £20.70 on the stock, which was trading down 1.2%, or 20p, at £15.79 at the time of writing.

‘A straightforward trading update describing ‘full year expectations unchanged in bus and rail’,’ he said.

‘We continue to see the share price reflecting an overly pessimistic outlook of Govia Thameslink Railway failing and Go-Ahead never winning another rail contract. We see opportunity, therefore, from that starting valuation and a group that confirms it is trading as expected.’

Key stats
Market capitalisation£1,611m
No. of shares out310m
No. of shares floating300m
No. of common shareholdersnot stated
No. of employees42479
Trading volume (10 day avg.)2m
Turnover£2,217m
Profit before tax£524m
Earnings per share48.90p
Cashflow per share85.20p
Cash per share92.13p

Consumer squeeze hits Greene King

Pub group Greene King (GNK) is feeling the strain from a squeeze on consumer spending and higher costs and Hargreaves Lansdown believes those challenges are unlikely to disappear any time soon.

Charles Huggins, manager of the HL Select UK Income fund, holds a 2.3% position in the company, which he said was ‘finding life tough going at the moment’.

‘The squeeze on disposable incomes has resulted in fewer trips to the pub, while the group is also having to contend with greater competition and increased levels of discounting in the food segment,’ he said.

‘At the same time unprecedented cost headwinds, most notably from business rates and the national living wage, are pressuring Greene King’s profit margins.’

The group, however, is on track to deliver £40-45 million of cost savings this year and strengthening its brand portfolio.

‘We think these initiatives have a good chance of succeeding and believe that Greene King’s high levels of cash generation should continue to underpin the dividend,’ said Huggins.

Key stats
Market capitalisation£319m
No. of shares out115m
No. of shares floating86m
No. of common shareholdersnot stated
No. of employees19319
Trading volume (10 day avg.)m
Turnover£950m
Profit before tax£37m
Earnings per share12.83p
Cashflow per share26.01p
Cash per share3.26p

McColl’s will shrug off supplier problems, says Liberum

Convenience store brand McColl’s (MCLSM) faces short-term disruption from its supplier going into administration but Liberum believes it is better placed to deal with the situation than its rivals.

Analyst Adam Tomlinson retained his ‘buy’ recommendation and target price of 300p on the shares, which fell 1.2% to 284.5p yesterday.

‘As an important current supplier to McColls, Palmer and Harvey’s fall into administration is a disruption that poses some short-term risks,’ he said. ‘These relate mainly to stock availability, particularly tobacco, increased working capital requirements and incremental costs to maintain the customer offering.’

Despite the short term disruption, Tomlinson said McColl’s ‘strong relationships with scale suppliers leave it better placed than many of its competitors to deal with the situation’.

He added that Palmer and Harvey’s portfolio also comprised of 120 convenience stores which could present a mergers and acquisitions opportunity for McColl’s.

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  • Daily Mail and General Trust P L C (DMGOa.L)
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  • Auto Trader Group PLC (AUTOA.L)
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  • Go-Ahead Group PLC (GOG.L)
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  • Greene King PLC (GNK.L)
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  • McColl's Retail Group PLC (MCLSM.L)
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