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The Expert View: Glencore, ITV and Pennon

Our daily roundup of analyst commentary on shares, also including Spire Healthcare and Essentra.

by Michelle McGagh on Sep 26, 2017 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£49,593m
No. of shares out14,395m
No. of shares floating12,175m
No. of common shareholdersnot stated
No. of employees154832
Trading volume (10 day avg.)56m
Turnover113,370m USD
Profit before tax-551m USD
Earnings per share-0.04 USD
Cashflow per share0.23 USD
Cash per share0.13 USD

Deutsche Bank upgrades Glencore

Deutsche Bank has upgraded miner Glencore (GLEN) on the back of its high cashflow, growth potential and exposure to the analysts’ ‘preferred commodities’.

Analyst Liam Fitzpatrick upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 300p to 420p. At the time of writing the stock was trading up 0.1%, or 0.4p, at 347p.

He said there were three ‘core drivers’ for the upgrade, including ‘exposure to our preferred commodities’.

‘The company has the most diversified commodity portfolio and the highest exposure to commodities geared to the growth in electric vehicles – copper, cobalt and nickel. Medium term we remain bulls on copper and zinc,’ he said.

Fitzpatrick also noted high cashflows that will ‘sustain out to 2020’ and an improved pricing outlook that ‘comes at a time when considerable headway in reducing operating and capital cost has been made’.

The third core driver is the growth options available: ‘Strategically, the company is more comfortably positioned than peers; latent capacity options in copper and zinc can keep organic volumes growing to 2020 and group capital expenditure levels contained.’

Key stats
Market capitalisation£6,817m
No. of shares out4,025m
No. of shares floating3,584m
No. of common shareholdersnot stated
No. of employees6121
Trading volume (10 day avg.)22m
Profit before tax£449m
Earnings per share11.14p
Cashflow per share14.22p
Cash per share13.94p

Liberum highlights advertising pick-up at ITV

ITV (ITV) shares are likely to re-rate as confidence in weak sectors returns and the outlook for advertising brightens, according to Liberum.

Analyst Ian Whittaker reiterated his ‘buy’ recommendation and increased his target price on the shares from 320p to 330p. The shares were up 1.4%, or 2.3p, at 168p at the time of writing.

Whittaker upgraded his full-year 2017 net advertising revenue to -2.5% from -4.5% ‘on the back of what looks like a relatively good September and our expectations of a flat fourth quarter’.

‘Our confidence is driven by signs that some previously weak sectors such as fast-moving consumer goods may be coming back and positive comment on the market generally,’ he said.

‘If consensus upgrades do come through, we expect a re-rating in the shares. We also expect ITV to be able to strike a much improved retransmission deal with Virgin Media.’

Key stats
Market capitalisation£3,310m
No. of shares out417m
No. of shares floating414m
No. of common shareholdersnot stated
No. of employees4788
Trading volume (10 day avg.)1m
Profit before tax£164m
Earnings per share39.60p
Cashflow per share87.23p
Cash per share90.43p

Hargreaves: Pennon flowing in the right direction

Water company Pennon (PNN) is shedding problem waste management contracts, which Hargreaves Lansdown said should inspire confidence but there are some issues remaining.

In a trading update ahead of half-year results, Pennon confirmed the Greater Manchester Waste Disposal Authority was looking to exit from its recycling and waste management contract but said a new energy recovery facility in Glasgow remained on schedule.

‘The show of confidence in its waste management division is particularly welcome, especially after Kier bemoaned difficult conditions in this part of its business,’ said Salmon.

‘We hope that once an agreement is reached for the termination of the beleaguered Greater Manchester waste disposal contract, any worries over the division start to fade into the rear view mirror. If this is the case, the yield of 4.9%, plus the prospect of inflation-beating dividend increases, should continue to lure investors in.’

Salmon added that one issue could be faster-than-expected interest rate rises that ‘could prompt those investors who flocked to defensive holdings like Pennon to sell up and move assets back into the bond market’.

At the time of writing the shares were trading up 0.5%, or 2.5p, at 794p.

Key stats
Market capitalisation£809m
No. of shares out352m
No. of shares floating272m
No. of common shareholdersnot stated
No. of employees4908
Trading volume (10 day avg.)1m
Profit before tax£9m
Earnings per share2.68p
Cashflow per share6.04p
Cash per share-9,999,999.00p

Jefferies cuts Spire target on NHS concerns

Pressure within the NHS will impact Spire Healthcare (SPI), which will become more reliant on private payers, says Jefferies.

Analyst James Vane-Tempest retained his ‘hold’ recommendation but lowered the target price from 350p to 259p following first-half results that showed sales below consensus, rising just 2.4%.

He said the group was ‘partially impacted by weak trading in July/August and lower margins from increased overheads’.

NHS sales were also below Jefferies’ estimates, growing just 3.5% against a forecast 6.2%. Vane-Tempest said NHS forecasts looked set to weaken as ‘we expect the challenging trading environment to continue into 2018’.,?

‘Self-pay will be increasingly more important as the outlook for NHS e-referrals appears to weaken,’ said Vane-Tempest, lowering 2017 estimated earnings per share by 17% from 19.2p to 16p.

At the time of writing the shares were trading down 1.4%, or 3.3p, at 227p.

Key stats
Market capitalisation£1,317m
No. of shares out263m
No. of shares floating259m
No. of common shareholdersnot stated
No. of employees7908
Trading volume (10 day avg.)m
Profit before tax£-52m
Earnings per share-19.80p
Cashflow per share5.52p
Cash per share20.55p

Hurricane impact at Essentra will be short term, says Peel Hunt

Recent hurricanes have affected the Houston and Puerto Rico operations of plastic products maker Essentra (ESNT) but Peel Hunt expects the impact to be short term.

Analyst Charles Hall retained his ‘add’ recommendation and target price of 585p on the stock, which was trading down 2%, or 10p, at 495p at the time of writing.

Hall said the extent of the damage was ‘relatively limited’, with the main issues being around loss of power and employee welfare.

‘The company expects the impact to be £500,000-£1 million in Houston and the costs in Puerto Rico are running at £500,000-£750,000 per week, albeit a significant part will be covered by insurance,’ he said.

‘The company will be looking at contingency plans although this will depend on customers’ decisions. We assume the issues will take a number of weeks to resolve and so are reducing our 2017 estimates by £3 million to £76.4 million but make no changes to future years.’

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Look up the shares

  • Glencore PLC (GLEN.L)
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  • Pennon Group PLC (PNN.L)
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  • Spire Healthcare Group PLC (SPI.L)
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  • Essentra PLC (ESNT.L)
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