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The Expert View: Domino’s, Greencore and Informa

Our daily roundup of analyst commentary on shares, also including UDG and Victoria.

by Michelle McGagh on Jan 31, 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£1,727m
No. of shares out483m
No. of shares floating478m
No. of common shareholdersnot stated
No. of employees911
Trading volume (10 day avg.)2m
Turnover£361m
Profit before tax£91m
Earnings per share12.93p
Cashflow per share14.41p
Cash per share4.63p

Hargreaves hungry for more Domino’s gains

Hargreaves Lansdown fund manager Steve Clayton is encouraged by Domino’s Pizza’s (DOM) update, believing it shows there is ‘clearly momentum’ in the business.

Clayton, who holds the takeaway pizza group in his HL Select UK Shares and UK income funds, cited 2017 profits expected to be ahead of market expectations.

‘It’s a strong end to the year, and the group now needs to show a similarly strong first quarter, where it is up against easy comparatives for last year,’ he said. ‘Domino’s mis-read the market and got its seasonal promotion all wrong.

‘All the signs are encouraging and there is clearly momentum in the business.’

He added that Europe was starting to deliver ‘scale benefits’ and the UK is ‘firing on all cylinders’ meaning the outlook is positive.

‘We hold Domino’s in both of the HL Select funds because of its capital-light business model, where franchisees put up most of the investment needed by the chain, leading to strong cashflows and excellent dividend paying potential,’ said Clayton.

The shares jumped 1.6% to 356.1p yesterday.

Key stats
Market capitalisation£1,405m
No. of shares out706m
No. of shares floating701m
No. of common shareholdersnot stated
No. of employees15795
Trading volume (10 day avg.)6m
Turnover£2,320m
Profit before tax£190m
Earnings per share1.86p
Cashflow per share12.63p
Cash per share2.81p

Greencore returning to ‘meaningful’ free cashflow, says Jefferies

Convenience food manufacturer Greencore (GNC) has seen growth decelerate but will benefit from US tax reform, falling capital expenditure, and a return to ‘meaningful’ free cashflow, says Jefferies.

Analyst Martin Deboo retained his ‘buy’ recommendation and target price of 300p on the shares, which fell 2% to 198.1p yesterday.

‘Top-line growth is decelerating as Greencore laps last year’s wins,’ he said. ‘But at high single digits on both sides of the pond it remains robust for a mature market foods business.’

He added that UK momentum was ‘strong’ and the US was ‘accelerating excluding the contract losses already disclosed’.‘Falling capital expenditure is consistent with a return to meaningful free cashflow and Greencore should be a directional beneficiary from US tax reform,’ said Deboo. ‘What’s not to like?’

Key stats
Market capitalisation£5,710m
No. of shares out824m
No. of shares floating823m
No. of common shareholdersnot stated
No. of employees6559
Trading volume (10 day avg.)6m
Turnover£1,346m
Profit before tax£438m
Earnings per share23.58p
Cashflow per share42.77p
Cash per share6.02p

Informa targets higher cost savings with UBM bid, says Liberum

Publishing and events company Informa (INF) has provided more detail about its £3.8 billion bid for rival UBM, and is targeting higher cost synergies than expected, says Liberum.

Analyst Ian Whittaker retained his ‘buy’ recommendation and target price of 855p on the shares, which were up 5p at 692p yesterday. The bid earlier this month saw UBM shares soar 15% but Informa’s fall 7%.

Whittaker said the ‘main highlight [of the update is] that it is targeting at least £60 million of annual synergies from the bid for UBM, higher than market expectations’.

‘What is likely to please the market is that Informa is pointing to at least £60 million of pre-tax cost synergies, with £50 million delivered in 2019, with £80 million one-off cash costs,’ he said.

‘We believe the £60 million is conservative given UBM is a business that was seen as quite cost-heavy. However, the synergy figure is higher than the £50 million forecast most analysts seem to have factored in so there should be a positive reaction.’

Key stats
Market capitalisation£1,967m
No. of shares out248m
No. of shares floating244m
No. of common shareholdersnot stated
No. of employees7921
Trading volume (10 day avg.)1m
Turnover867m USD
Profit before tax109m USD
Earnings per share0.20 USD
Cashflow per share0.34 USD
Cash per share0.54 USD

Numis: UDG trading on ‘overly generous’ multiples

UDG Healthcare (UDG), which offers marketing, packaging and drug distribution to the healthcare industry, is trading on ‘overly generous’ multiples, says Numis.

Analyst Paul Cuddon retained his ‘reduce’ recommendation and target price of 765p on the stock after an ‘upbeat’ first quarter statement. The shares fell 1% to 803.8p yesterday.

He said packaging and commercial services had delivered a ‘good start’ with profit before tax ‘well ahead’ of last year but its Sharp Packaging Services division was down due to client losses and hurricane damage in Puerto Rico hitting the supply chain.

‘UDG commands a premium to the global pharma services sector based on its mergers and acquisitions-enhanced earnings per share growth,’ said Cuddon. ‘We remain focused on the underlying performance of UDG’s higher value business…and think the 16x enterprise value/earnings multiple remains overly generous given the 5% underlying growth reported in full-year 2017, that will likely remain subdued in the first half of 2018.’

Key stats
Market capitalisation£938m
No. of shares out118m
No. of shares floating89m
No. of common shareholdersnot stated
No. of employees1800
Trading volume (10 day avg.)1m
Turnover£330m
Profit before tax£46m
Earnings per share13.39p
Cashflow per share30.90p
Cash per share30.76p

Victoria has more to go, says Berenberg

Berenberg believes carpet maker Victoria’s (VCP) £250 million acquisition of European counterpart Keraben will help consolidate the fragmented flooring market.

Analyst Robert Chantry retained his ‘buy’ recommendation and target price of 950p on the shares, which edged 4p higher to 800p yesterday.

The company agreed a £246.5 million deal to buy Valencia-based Keraben in November, pushing Chantry to upgrade earnings per share by c.20% from full-year 2019 onwards and he has been further impressed by a trip to Valencia.

‘We came away with the impression that Keraben is very well run, exceptionally well invested and is much larger than similar sites we have seen. Furthermore, we think it should improve Victoria’s ability to consolidate the fragmented European flooring markets,’ he said.

‘Despite the very strong run in the stock price during 2017, we think the story has much further to run.’

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  • Domino's Pizza Group PLC (DOM.L)
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  • Greencore Group PLC (GNC.L)
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  • Informa PLC (INF.L)
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  • UDG Healthcare PLC (UDG.L)
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  • Victoria PLC (VCP.L)
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