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The Expert View: Domino’s, Sky and Wincanton
Our daily roundup of analyst commentary on shares, also including Ashmore and Low & Bonar.
by Michelle McGagh on Apr 19, 2017 at 05:00
Buying opportunity at Domino’s, says Numis
Numis believes there is a buying opportunity at Domino’s Pizza (DOM) after a 20% fall in the shares.
Analyst Richard Stuber retained his ‘buy’ recommendation and target price of 510p on the stock after share price falls following preliminary results in March. The shares were trading flat at 326p at the time of writing.
The shares have fallen 20% since the results but Stuber said this correction was not justified.
‘Despite slowing like-for-like sales, we retain confidence in the cash generative, high return on capital employed model,’ he said.
‘We do not expect like-for-like to revert to double-digit growth, but we do expect system sales – the key sign of health – to remain in high single digit in line with the growth for the wider delivery market. We think this share price fall offers an attractive buying opportunity.’
Note: Domino's Pizza implemented a three-for-one share split in June last year.
Inflows up at Ashmore but Peel Hunt remains cautious
Specialist emerging markets investment manager Ashmore (ASHM) has returned to positive inflows but Peel Hunt remains cautious as the earnings multiple has changed little.
Analyst Stuart Duncan retained his ‘hold’ recommendation and target price of 330p on the stock following a third quarter trading update. The shares were trading down 1.7%, or 6p, at 357p at the time of writing.
Duncan said the update ‘marks a return to positive inflows, which was expected to some extent after an improving trend over the last two quarters,’ he said.
‘We do not anticipate much change to forecasts, leaving the stock trading on a December 2017 enterprise value/profits [ratio] of 14.4x, slightly higher than the sector average.’
Despite the attraction of a 4.6% yield, Duncan said he maintained his ‘relatively cautious stance, as the multiple is little changed for the following year given the reduction in earnings’.
‘We remain of the view that Ashmore is well placed to capitalise on the long-term trend of increasing allocation to emerging market assets,’ he said.
Low & Bonar share ‘unsustainably cheap’, says Berenberg
Plastics group Low & Bonar (LWB) will need to prove to investors that ‘production interruptions’ are a thing of the past if the ‘unsustainably cheap’ stock is to reach its potential, says Berenberg.
Analyst Ian Osburn retained his ‘buy’ recommendation and target price of 112p on the stock, which was trading down 1.2%, or 1p, at 79.5p at the time of writing.
‘It is clear that management must deliver on its strategic plans for our “buy” case to hold. It is likely that the market will have to become confident that production interruptions are a thing of the past for the stock to reach our price target,’ he said.
‘We are happy with that risk/reward profile and see time to purchase the stock running out ahead of reported results confirming the improvement,’ he added.
‘With new management delivering on its plans, we expect Low & Bonar’s earnings per share growth and dividend yield to be the highest in the sector over the next three years.’
Sky update to reveal headwinds, says Jefferies
Jefferies is expecting the trading statement from Sky (SKY) this week to be ‘limited’ but with enough information to confirm the broadcaster is battling weak consumer spending.
Analyst Jerry Dellis retained his ‘hold’ recommendation and target price of £10.50 on the stock, which was trading flat at 981p at the time of writing.
‘Sky will publish a third quarter 2016/17 trading statement on Thursday,’ he said. ‘Disclosure is likely to be limited as normal but should be sufficient to illustrate headwinds from a weaker consumer environment in the UK and, in Italy, reduced appetite,’ he said.
He said the broadcaster was unlikely to make any comments on the proposed acquisition by 20th Century Fox.
‘Whilst competition clearance from the European Commission was received on 7 April, the more sensitive matters of the UK public interest reviews and Ofcom’s “fit and proper” assessment on Sky are not due to report until 16 May.’
The Share Centre: growth and divis offered at Wincanton
Logistics specialist Wincanton (WIN) is The Share Centre’s top pick this week as it believes it has capacity to grow and has a healthy dividend.
Analyst Graham Spooner retained his ‘buy’ recommendation on the stock following its latest trading update. The shares were trading flat at 271p at the time of writing.
He said the company had a number of blue chip customers in defensive sectors which meant ‘revenues should be resilient even if economic growth falters’.
Despite being Britain’s largest logistics provider, Wincanton only has 4% market share ‘so attracted investors should appreciate there is plenty of scope for further growth’.
‘Indeed, there is great potential for more web-based activity, such as online retailers, as well as more growth in sectors such as defence and healthcare,’ he said.
The shares currently trade on a 2018 price/earnings ratio of 9.8x, which Spooner said was ‘good value relative to peers while the prospective dividend yield of 3.7% is also good’.
‘In fact, dividends are more than twice covered by earnings,’ he said.
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Look up the shares
- Domino's Pizza Group PLC (DOM.L)
- Sky PLC (SKYB.L)
- Wincanton PLC (WIN.L)
- Ashmore Group PLC (ASHM.L)
- Low & Bonar PLC (LWB.L)