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The Expert View: GlaxoSmithKline, Stagecoach and Miton

Our daily roundup of analyst commentary on shares, also including United Utilities and 4imprint.

by Michelle McGagh on Mar 28, 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£66,979m
No. of shares out4,959m
No. of shares floating4,902m
No. of common shareholdersnot stated
No. of employees98462
Trading volume (10 day avg.)9m
Profit before tax£10,488m
Earnings per share52.82p
Cashflow per share104.61p
Cash per share78.88p

Glaxo acquires stake in Novartis consumer healthcare

GlaxoSmithKline (GSK) has acquired a 36.5% stake in Novartis’ consumer healthcare joint venture where margins look attractive, says Shore Capital.

Analyst Tara Raveendran retained her ‘hold’ recommendation on the stock, which jumped 5.2% to £13.55 yesterday.‘The transaction is expected to be accretive to adjusted earnings in 2018 and thereafter,’ she said.

‘From our current forecasts, a quick calculation suggests that by 2022 the consumer healthcare business will generate sales of $8.8 billion, at a 25% operating margin giving an operating profit of $2.2 billion…this suggests a 2022 return on capital of c.6-7% with a transaction cost of £9 billion.’

Key stats
Market capitalisation£744m
No. of shares out573m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees34000
Trading volume (10 day avg.)1m
Profit before tax£229m
Earnings per share5.52p
Cashflow per share31.33p
Cash per share54.62p

Stagecoach: no news is good news, says Jefferies

No news is good news from Stagecoach (SGC) which is still expected to meet 2018 forecasts despite disruptive weather, says Jefferies.

Analyst Joe Spooner retained his ‘hold’ recommendation and target price of 150p on the stock, which fell 1.2% to 129.6p yesterday.

‘There’s some slowdown in the US to note, but that will have absorbed weather disruption,’ he said.

‘Overall, the headline steer in the 44-week trading update that the group’s expectations for full-year 2018 earnings per share is unchanged plus consistent trends across the rest of the group should reassure.’

However, he added that he ‘continues to be conscious of the short-dated nature of the performing contracts’ in rail operations.

Key stats
Market capitalisation£73m
No. of shares out173m
No. of shares floating111m
No. of common shareholdersnot stated
No. of employees53
Trading volume (10 day avg.)1m
Profit before tax£7m
Earnings per share3.06p
Cashflow per share3.28p
Cash per share11.53p

Miton’s low valuation ‘unjustifiable’, says Peel Hunt

There is a ‘valuation opportunity’ at investment manager Miton Group (MGR), which is set to deliver growth, says Peel Hunt.

Analyst Stuart Duncan retained his ‘buy’ recommendation and target price of 60p on the stock after final results that showed it is in an ‘attractive position’ and has the ‘ability to deliver further growth in coming years’. The shares were trading at 43p yesterday.

‘There is a clear valuation opportunity just now with Miton,’ he said. ‘There is a good stream of earnings upgrades and the announced step change in the dividend means the stock is now yielding 4% based on December 2018 forecasts.’

He said the stock was trading at an enterprise value/earnings ratio of 8.6x, against a sector average of 12.6x.

‘We continue to believe this is completely unjustified,’ said Duncan.

Key stats
Market capitalisation£4,558m
No. of shares out682m
No. of shares floating680m
No. of common shareholdersnot stated
No. of employees5310
Trading volume (10 day avg.)4m
Profit before tax£998m
Earnings per share63.53p
Cashflow per share116.96p
Cash per share36.34p

United Utilities under the pump, says Hargreaves

United Utilities (UU) 6% dividend yield is a clear attraction but Hargreaves Lansdown warns of concerns about regulation and interest rates ‘lurking around the corner’.

A trading update ahead of full-year results confirms trading is in line. Analyst George Salmon said the company’s inflation-proof 6% dividend yieldwas ‘a clear opportunity’ but ‘the worry is what’s lurking around the corner’.

‘Interest rates look likely to head upwards faster than previously expected, eroding the relative appeal of shares in the utilities sector over other income-focused assets like bonds and gilts,’ he said.

‘Other worries around the stock are the increased political and regulatory pressures. While the debate over nationalisation attracts headlines, the main talking point in the industry is how dividends will fare under Ofwat’s next pricing structure, which looks tougher for the providers.’

He added the group was confident on its ability to keep paying inflation-linked income but ‘there’s no getting away from the fact the triumvirate of higher rates, tougher regulation, and political pressure means the water utilities are under the pump at the moment’.

Key stats
Market capitalisation£499m
No. of shares out28m
No. of shares floating26m
No. of common shareholdersnot stated
No. of employees852
Trading volume (10 day avg.)m
Turnover441m USD
Profit before tax31m USD
Earnings per share0.71 USD
Cashflow per share0.77 USD
Cash per share0.77 USD

Berenberg downgrades 4imprint on ‘dark sky scenario’

Berenberg has downgraded promotional gifts printer 4imprint (FOUR) on concerns about increased competition putting pressure on margins.

Analyst Benjamin May downgraded his recommendation from ‘buy’ to ‘sell’ and reduced the target price from £20.00 to £14.00. The shares fell 10p to £17.70 yesterday.

He said he had ‘always liked 4imprint given its simple business model, long-term track record, and scope for market gains’ but has recently been concerned about competition from Amazon and Wal-Mart, as well as a reduction in the company’s return on marketing investment.

‘This puts both the company’s top-line and gross margins at risk,’ he said.

‘With an expanding operational expenditure base we could envisage a black sky scenario in which 4imprint’s estimates are more than 40% too high. Therefore, as downside risk is emerging we cut our base case earnings forecasts by 7% across the coming years.’

He added the price/earnings multiple was near all-time highs, which has prompted the downgrade.

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Look up the shares

  • 4imprint Group PLC (FOUR.L)
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  • GlaxoSmithKline PLC (GSK.L)
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  • Miton Global Opportunities PLC (MIGO.L)
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  • Stagecoach Group PLC (SGC.L)
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  • United Utilities Group PLC (UU.L)
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