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The Expert View: Glencore, First Group and ITV

Our daily roundup of analyst commentary on shares, also including McCarthy & Stone and Auto Trader.

by Daniel Grote on Jun 02, 2017 at 05:01

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£4,257m
No. of shares out975m
No. of shares floating922m
No. of common shareholdersnot stated
No. of employees854
Trading volume (10 day avg.)3m
Profit before tax£127m
Earnings per share12.65p
Cashflow per share13.71p
Cash per share1.04p

Solid results on cards at Auto Trader

Deutsche Bank is expecting a healthy set of results from Auto Trader (AUTO) when the car retailer website provides an update next Thursday.

Analyst Chris Collett rates the stock as a ‘hold’ with a 435p price target. The shares were up 4.5% at 443.3p at the time of writing, buoyed by an upgrade from rival analysts at Barclays.

Collett is expecting to see double-digit growth in average revenue per retailer in 2017.

‘Auto Trader reported a strong 13.3% average revenue per retailer growth in the first half, benefiting from a double price rise,’ he said. For full-year 2017 we forecast a more moderate 11%, of which 43% driven by price, 36% driven by stock and the remaining by up-sell and cross-sell.’

Key stats
Market capitalisation£1,701m
No. of shares out1,205m
No. of shares floating1,185m
No. of common shareholdersnot stated
No. of employees108624
Trading volume (10 day avg.)3m
Profit before tax£90m
Earnings per share7.45p
Cashflow per share39.11p
Cash per share29.89p

FirstGroup dividend disappointment

Shore Capital is disappointed at the lack of a dividend from FirstGroup (FGP), which it believes is ‘now overdue’.

The train and bus operator hasn’t paid a dividend since 2013 when it embarked on a long-running turnaround plan. This includes attempts to reduce its debt, following its 2007 acquisition of US bus group Laidlaw.

Shore Capital welcomed its full-year results, which exceeded expectations in all divisions apart from its UK bus arm. FirstGroup's shares were down 4.5% at 141.2p on Thursday's close.

‘FirstGroup’s demise post the ill-thought-out and poorly structured Laidlaw acquisition took a number of years to play out. For a multitude of understandable and forecastable reasons the turnaround and reinvigoration of the company has also taken a number of years,’ said Shore Capital analyst Martin Brown.

‘We believe it is now evident that this process is delivering positive results, albeit the performance in UK bus remains woeful. We have long heralded [the year ending March 2017] as the inflection point in earnings and most importantly cashflow, we believe today’s results support this view.’

Key stats
Market capitalisation£40,849m
No. of shares out14,395m
No. of shares floating12,175m
No. of common shareholdersnot stated
No. of employees110378
Trading volume (10 day avg.)45m
Turnover118,675m USD
Profit before tax-577m USD
Earnings per share-0.04 USD
Cashflow per share0.24 USD
Cash per share0.13 USD

Glencore positions for merger

Jefferies believes Glencore (GLEN) is positioning for another merger, but dismissed the chances of a successful revival of its drawn-out courting of rival miner Rio Tinto.

‘Glencore contacted Rio in 2014 regarding a potential merger. Rio rejected this approach. We believe Glencore is positioning itself for large mining mergers and acquisitions once again, and Rio would still be a desirable target,’ said analyst Christopher LeFemina.

‘However, regulatory hurdles and shareholder opposition would make a merger with Rio very difficult to execute, in our view. Large mergers in mining may prove to be elusive for Glencore.’

LeFemina rates the shares a ‘buy’ with a target price of 380p. At the time of writing they were trading 0.23p lower at 284.9p.

‘Glencore is our top pick, but sector risk is rising,’ he said. ‘Our analysis indicates that Glencore is now taking action to… reduce its dependence on cyclical industrial assets while maintaining leverage to commodities with structural demand tailwinds (copper, cobalt, vanadium, nickel). This approach should partially protect Glencore from periods of cyclical weakness in the sector.’

Key stats
Market capitalisation£7,797m
No. of shares out4,025m
No. of shares floating3,581m
No. of common shareholdersnot stated
No. of employees6121
Trading volume (10 day avg.)21m
Profit before tax£449m
Earnings per share11.14p
Cashflow per share14.22p
Cash per share13.94p

ITV still ‘top pick’ despite ad difficulties

Liberum has lowered advertising revenue estimates for ITV (ITV) but maintained the broadcaster as a ‘top pick’.

Analyst Ian Whittaker now expects advertising revenues to fall 2.1% for 2017, having previously forecast that they would be flat. In spite of this, he anticipates the broadcaster is well placed to perform well, keeping his ‘buy’ rating on the shares and 340p target price. The shares were down 2% on Thursday's close, at 194.6p.

‘We keep ITV as our top pick and think it is in a much better structural position than consensus agrees,’ he said.

‘ITV as well as other TV stocks have changed their revenue mix over the last years and while advertising is still key, ITV manages to beat earnings estimates even in a weak ad environment.’

Key stats
Market capitalisation£999m
No. of shares out537m
No. of shares floating495m
No. of common shareholdersnot stated
No. of employees1344
Trading volume (10 day avg.)3m
Profit before tax£73m
Earnings per share13.90p
Cashflow per share14.66p
Cash per share22.15p

McCarthy & Stone can’t match rivals’ yield

Numis has initiated coverage of retirement house builder McCarthy & Stone (MCS) with a ‘hold’ rating, arguing its lower yield versus mainstream builders means the shares offer less upside.

‘McCarthy & Stone is the only way to play the long-term shift in demographic trends to an ageing population in the housebuilding sector,’ said Chris Millington.

‘However, the group is focused on the trade-down buyer, it is not a beneficiary of the Help to Buy scheme and is more exposed to the vagaries of the second-hand market,’ he added.

He flagged that the group expected to launch twice as many sites in 2018 as in 2017, supporting higher volumes, prices and margins.

‘However, given the lower dividend yield and the fact that return on equity is somewhat constrained by a lower asset turn, we forecast the shares have slightly less upside than the average house builder.’

Millington placed a 197p target price on the shares, which were trading 0.2% higher at 185.4p at the time of writing.

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  • Glencore PLC (GLEN.L)
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  • FirstGroup PLC (FGP.L)
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  • McCarthy & Stone PLC (MCS.L)
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  • Auto Trader Group PLC (AUTOA.L)
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