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The Expert View: Greencore, Shire and Barratt

Our daily roundup of analyst commentary on shares, also including John Laing and Restaurant Group.

by Daniel Grote on Aug 30, 2017 at 05:00

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Key stats
Market capitalisation£1,378m
No. of shares out705m
No. of shares floating700m
No. of common shareholdersnot stated
No. of employees11856
Trading volume (10 day avg.)6m
Profit before tax£47m
Earnings per share9.40p
Cashflow per share18.67p
Cash per share5.07p

Now is the time to buy ‘rock bottom’ Greencore

Shares in Greencore (GNC) have fallen 11% over the last week and analysts at Jefferies believe now is the time to snap up the Irish food group, with confidence hitting ‘rock bottom’.

Greencore was last week forced to issue a response to the share price slide, saying that it was ‘not aware of any developments’ since its July trading update that had changed the outlook.

But it did say there had been ‘some level of churn in the legacy retail part of the US business’, with a switch from frozen to fresh produce in its Florida site.

Jefferies analyst Martin Deboo estimated the frozen food contract in the US was responsible for £60 million in sales, and cut his 2018 earnings by 4% as a result. But he argued the share price reaction was still overdone.

‘The sell-off has been twice that, from an already low base,’ he said. ‘We see Greencore’s problems as more those of poor expectations management than the performance and valuation and fundamentals,’ he said.

‘But poor expectations management does not a bad business make. We see compelling reasons to own the shares.’ Deboo retained his ‘buy’ rating and 300p target price on the shares, which fell 2.4% to 195.2p yesterday.

Key stats
Market capitalisation£33,766m
No. of shares out908m
No. of shares floating908m
No. of common shareholdersnot stated
No. of employees23906
Trading volume (10 day avg.)3m
Turnover8,813m USD
Profit before tax467m USD
Earnings per share0.60 USD
Cashflow per share2.07 USD
Cash per share0.46 USD

Disgruntled staff bodes ill for Shire

UBS believes poor employee satisfaction at Shire (SHP) poses problems for the pharmaceutical company and have cut their price target on the shares.

Analysts collected 20,000 employee reviews of a number of firms from careers website Glassdoor. They found that Shire came towards the bottom in most categories, compared to biopharmaceutical peers.

Analyst Jack Scannell retained his ‘neutral’ rating but cut his price target to £40.95 from £45. The shares fell 1.2% to £37.22 yesterday.

‘Employee satisfaction has, to an extent, paralleled investor sentiment,’ he said. ‘Neither markets nor employees seem as confident as management that things are on track. We are therefore more cautious that the now-consensual valuation case is working.’

Key stats
Market capitalisation£6,166m
No. of shares out1,010m
No. of shares floating977m
No. of common shareholdersnot stated
No. of employees6209
Trading volume (10 day avg.)3m
Profit before tax£550m
Earnings per share54.32p
Cashflow per share54.77p
Cash per share75.61p

Deutsche looks for Barratt margin targets

Barratt Developments (BDEV) is the cheapest of the blue-chip house builders, but Deutsche Bank analysts has downplayed hopes of a major boost from full-year results due next week.

Analyst Glynis Johnson retained her ‘buy’ rating and 717p target price on the shares, which fell 3p to 609p yesterday.

‘With the trading update in mid July giving us the third upgrade since the start of the year, while management has previously proved conservative in their guidance, we see the scope for positive surprise to be more limited,’ she said.

‘As such, we believe the greater focus of the update will be any update on medium-term targets, specifically in terms of margin improvement.

‘With the three-year targets last set [in] 2014… it appears time for Barratt to again set out to investors their medium term objectives.’

Key stats
Market capitalisation£1,078m
No. of shares out367m
No. of shares floating366m
No. of common shareholdersnot stated
No. of employees240
Trading volume (10 day avg.)m
Profit before tax£190m
Earnings per share51.40p
Cashflow per share51.62p
Cash per share0.44p

‘Cheap’ John Laing is on track

Berenberg has upped its target price on John Laing (JLG) after last week’s half-year results from the infrastructure group.

Analyst Olivia Peters raised her target price to 350p from 340p and retained her ‘buy’ rating on the shares, which fell 3.3% to 294.3p yesterday.

She said the results showed the group was ‘well placed’ to meet full-year targets despite the impact of writing down its Manchester waste contract, adding that the shares appeared cheaper than those of peers.

‘John Laing is trading at a 6.4% premium to NAV, while listed infrastructure peers are trading at a 1% average premium and real estate peers at a 10% average premium,’ she said.

‘We believe that the stock is trading at an unjustified discount to its peers. We see scope for a re-rating supported by low bond yields and continued delivery on targeted investments and disposals.’

Key stats
Market capitalisation£629m
No. of shares out201m
No. of shares floating199m
No. of common shareholdersnot stated
No. of employees15570
Trading volume (10 day avg.)1m
Profit before tax£-40m
Earnings per share-20.06p
Cashflow per share0.82p
Cash per share4.76p

Peel Hunt downgrades Restaurant Group

Peel Hunt has downgraded its rating on Restaurant Group (RTN), predicting more pain for shareholders in first-half results due this Thursday.

Analyst Douglas Jack moved his rating to ‘reduce’ from ‘hold’ and cut his target price to 300p from 350p. The shares fell 2.7% to 314.1p yesterday.

‘Restaurants are the weakest sector in leisure, in our view, needing 2.5% to 3.5% like-for-like sales to hold profits, against a backdrop of oversupply and, in many cases, overpricing… and limited scope to mitigate site costs and diversify revenue.’

He predicted a 29% slide in profits from the owner of the Frankie & Benny’s and Chiquito restaurant chains, adding that risks to 2018 forecasts were ‘on the downside’, with the recovery period likely to be ‘longer than expected’.

‘Some commentators claim the market will write 2017 off as a transitional year, but with price cuts weighted in the second and third quarters, there is a clear risk that 2018 will also be a transitional year, with profits falling again and requiring a cut in the dividend.’

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Look up the shares

  • Greencore Group PLC (GNC.L)
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  • Shire PLC (SHP.L)
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  • Barratt Developments PLC (BDEV.L)
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  • John Laing Group PLC (JLG.L)
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  • Restaurant Group PLC (RTN.L)
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