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The Expert View: Glencore, Rank and Hammerson

Our daily roundup of analyst commentary on shares, also including Watkin Jones and Homeserve.

by Michelle McGagh on Apr 06, 2018 at 05:00

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Key stats
Market capitalisation£52,874m
No. of shares out14,425m
No. of shares floating12,283m
No. of common shareholdersnot stated
No. of employees145977
Trading volume (10 day avg.)50m
Turnover146,184m USD
Profit before tax8,428m USD
Earnings per share0.29 USD
Cashflow per share0.53 USD
Cash per share0.10 USD

Markets undervaluing Glencore, says Barclays

Miners may be under pressure at the moment but Barclays believes Glencore’s (GLEN) marketing business can outperform long-term guidance.

Analyst Ian Rossouw retained his ‘overweight’ recommendation and target price of 450p on the stock, which jumped 4% to 358.8p yesterday.

‘With the mining sector under pressure from macro concerns, we see a variety of catalysts driving earnings momentum for Glencore in the near term that are differentiated from peers,’ he said.

‘Conditions look ripe for the marketing business to deliver at or above the top of its long-term guidance range over the next few years, which is not reflected in consensus expectations.’

Rossouw added that Glencore traded at as much as a 37% price/earnings discount to the mining peers stripping out the marketing business ‘which seems difficult to justify’ and the business remains his top pick in the sector.

Key stats
Market capitalisation£700m
No. of shares out391m
No. of shares floating170m
No. of common shareholdersnot stated
No. of employees5912
Trading volume (10 day avg.)m
Turnover£707m
Profit before tax£130m
Earnings per share16.03p
Cashflow per share27.58p
Cash per share20.22p

Rank takes earnings hit but opportunities remain, says Peel Hunt

Gambling group Rank (RNK) has been hit by poor weather and weak visitor numbers forcing it to downgrade its earnings but Peel Hunt is still optimistic about the digital arm.

Analyst Ivor Jones retained his ‘buy’ recommendation and but reduced his target price from 265p to 245p after it issued a trading statement guiding to £76-78 million of earnings for full-year 2018, a 6% reduction. The board also flagged concerns about a weak consumer backdrop that has pushed Jones to reduce his 2019 full year earnings forecast by 3% to £81 million.

However, he said that Rank has ‘net cash and plans in place to improve the performance of Grosvenor Casinos over the medium to long term’.

‘The digital business continues to deliver strong growth in a competitive UK market for online gambling,’ said Jones.

‘However, the warning is likely to undermine confidence in the trajectory of trading and we are lowering our target price...to reflect this.’

The shares slumped 15.7% to 180p yesterday.

Key stats
Market capitalisation£4,344m
No. of shares out794m
No. of shares floating753m
No. of common shareholdersnot stated
No. of employees558
Trading volume (10 day avg.)9m
Turnover£249m
Profit before tax£176m
Earnings per share48.92p
Cashflow per share52.10p
Cash per share25.93p

Numis warns on Hammerson share fall potential

Numis believes Klepierre’s will not make a formal bid for Hammerson (HMSO) and the property developer’s shares will trade down as a tie-up with Intu looks more likely.

Analyst Robert Duncan retained his ‘hold’ recommendation and target price of 559p on the stock, which jumped 1.6% to 547p yesterday.

He said that ‘unsurprisingly given the situation it finds itself in’ and fending off a hostile bid from Klepierre, Hammerson has outlined a ‘solid first quarter operational performance’ but sectoral headwinds remain ‘substantial’

‘For now, the key drivers for Hammerson’s profitability growth remain premium outlets and Ireland, both of which will be diluted significantly on the proposed combination with Intu,’ he said.

‘The shares trade on a 32% discount to first quarter 2018 net asset value but in the event Klepierre does not make a formal bid, which we see as unlikely, Hammerson shares are likely to trade down as the probability of a tie-up with Intu rises.’

Key stats
Market capitalisation£489m
No. of shares out255m
No. of shares floating171m
No. of common shareholdersnot stated
No. of employees678
Trading volume (10 day avg.)1m
Turnover£302m
Profit before tax£44m
Earnings per share14.02p
Cashflow per share14.45p
Cash per share25.95p

Jefferies backs Watkin Jones management

An update from construction and development company Watkin Jones (WJG) has renewed Jefferies' confidence following the stepping down of the chief executive.

Analyst Anthony Codling retained his ‘buy’ recommendation and target price of 250p on the stock, which jumped 4.1% to 188.6p yesterday.

‘The price of Watkin Jones shares have fallen by 20% since the announcement of its full-year results on 15 January,’ he said. ‘The financial results were a touch above our expectations, but came with the announcement that the chief executive had decided to stand down.’

He added that its update ‘underpins our confidence in the bench strength of the team’ despite still awaiting news of the succession plan.

‘It seems to us the understudies have learned their trade well and the first act of 2018 was a powerful one,’ said Codling.

Key stats
Market capitalisation£2,445m
No. of shares out330m
No. of shares floating285m
No. of common shareholdersnot stated
No. of employees5242
Trading volume (10 day avg.)1m
Turnover£785m
Profit before tax£154m
Earnings per share23.60p
Cashflow per share39.30p
Cash per share14.87p

Homeserve can justify its high multiple, says Liberum

Emergency home repairs business Homeserve (HSV) is trading on a relatively high multiple but Liberum is expecting returns from growth and yield from the ‘scalable platform’ this year.

Analyst Joe Brent retained his ‘buy’ recommendation and target price of 950p on the stock after an inline pre-close update.

‘We see a 2018 price/earnings of 20.6x falling to 18.7x in 2019 as a relatively high multiple but total shareholder return will come from growth, yield, and occasional specials, and/or accretion from acquisitions,’ he said.

‘We think it is legitimate to view Homeserve as a scalable platform, capable of exceptional growth.’

Brent noted that UK retention rates and customer numbers were ‘expected to remain stable’ and management had strengthened to ‘assist international development’.

‘Trials at the digital businesses are ongoing and we will hear more at the full year,’ he said.

The shares jumped 1.6% to 742p yesterday.

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Look up the shares

  • Glencore PLC (GLEN.L)
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  • Hammerson PLC (HMSO.L)
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  • HomeServe PLC (HSV.L)
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  • Rank Group PLC (RNK.L)
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  • Watkin Jones PLC (WJG.L)
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