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The Expert View: Hargreaves Lansdown, Capita & DFS

Our daily roundup of analyst commentary on shares, also including AstraZeneca and Fidessa.

by Michelle McGagh on Feb 14, 2017 at 05:00

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Key stats
Market capitalisation£6,629m
No. of shares out474m
No. of shares floating241m
No. of common shareholdersnot stated
No. of employees970
Trading volume (10 day avg.)1m
Profit before tax£177m
Earnings per share37.26p
Cashflow per share38.44p
Cash per share44.11p

Peel Hunt upgrades Hargreaves after strong first half

Peel Hunt has upgraded fund supermarket Hargreaves Lansdown (HRGV) after stronger than expected first-half results. Analyst Stuart Duncan upgraded his recommendation from ‘hold’ to ‘add’ and increased the target price from £13.45 to £14.95. The shares were trading up 1.6%, or 23p, at £13.89 at the time of writing.

‘After last week’s interim results, we have updated our forecasts. Taking into account the stronger than expected first-half performance, the net effect is that forecasts for 2017 and 2018 increased by 5% and 4% respectively,’ he said.

‘As much as the financial returns, in our view, the statement last week confirmed the power of Hargreaves’ business model. Although the launch has been slightly delayed, and the financial returns are likely to be modest for the first few years, the development of HL Savings will add another powerful attraction for potential new clients.’

Key stats
Market capitalisation£3,417m
No. of shares out667m
No. of shares floating660m
No. of common shareholdersnot stated
No. of employees69284
Trading volume (10 day avg.)4m
Profit before tax£53m
Earnings per share7.86p
Cashflow per share47.11p
Cash per share80.41p

Capita faces squeeze after losing Co-op contract, says Shore Capital

Capita (CPI) has ended its mortgage services contract dispute with Co-op but will lose the ‘transformation’ contract which will have a negative impact, says Shore Capital.

Analyst Robin Speakman retained his ‘sell’ recommendation on the stock, which was trading down 1.2%, or 6.5p, at 519p at the time of writing.

‘The outsourcing services conglomerate confirms that it has resolved its mortgage service contract dispute with the Co-op. While welcome news, no financial information has been revealed,’ he said.

‘However, we note that the service “transformation” aspect of the contract where Capita were to revise the IT system will cease – likely the highest margin work. The amended contract, where Capita provides mortgage administration services and new mortgage application processing, will continued until December 2020.’

Speakman said while he will make no changes to forecasts now ‘the resolution is likely negative in the mix for margins’.

Key stats
Market capitalisation£513m
No. of shares out213m
No. of shares floating178m
No. of common shareholdersnot stated
No. of employees3923
Trading volume (10 day avg.)1m
Profit before tax£60m
Earnings per share28.16p
Cashflow per share36.85p
Cash per share32.77p

DFS is undervalued, says Berenberg

Sales ahead of expectation and investment in the business means furniture retailer DFS (DFSD) is undervalued, says Berenberg.

Analyst Michelle Wilson retained her ‘buy’ recommendation and target price of 310p on the stock. The shares were trading up 0.3%, or 0.7p, at 241p at the time of writing.

‘DFS’s first-half trading update demonstrated another period of strong top-line growth, with 7% gross sales growth materially ahead of our expectations,’ she said.

‘This will drive operating leverage in the business, although in the near term this will be offset by foreign exchange headwinds, investment in the space optimisation programme and in scaling Dwell and Sofa Workshop. Such investments, which were already factored into our numbers, will benefit the profit and loss from full-year 2018.’

She added that the company was ‘highly cash generative’ and she predicted the special dividend to be announced in the interims ‘could by c.£22 million’, representing a 5% yield.

‘We believe the stock is undervalued trading at a 19% discount to specialist peers: we remain buyers,’ said Wilson.

Key stats
Market capitalisation£59,079m
No. of shares out1,265m
No. of shares floating1,260m
No. of common shareholdersnot stated
No. of employees61500
Trading volume (10 day avg.)4m
Turnover18,418m USD
Profit before tax2,802m USD
Earnings per share2.21 USD
Cashflow per share3.64 USD
Cash per share3.74 USD

Liberum: AstraZeneca has further to go

‘Gross mis-pricing’ of AstraZeneca (AZN) shares is over but Liberum sees another 10% in upside.

Analyst Roger Franklin retained his ‘buy’ recommendation but reduced the target price from £52.00 to £51.00.

The shares were trading up 0.4%, or 18p, at £46.45 at the time of writing. ‘We upgraded AstraZeneca at the end of November, concluding that the valuation priced little to nothing for the high potential immuno-oncology franchise,’ he said.

‘With the attractive valuation and reassurance from management on unchanged [lung cancer study] Mystic confidence, the stock is now up 10%. While the gross mispricing is now over, even after modestly trimming our price target on weak earnings, we do see another c.10% upside to our fair value with several catalysts to come pre-Mystic.

‘But the real prize is the high-risk/high-reward potential for immuno-oncology to work in all comers and across multiple-indicators, at which point AstraZeneca is a £60-plus stock in our view.’

Key stats
Market capitalisation£936m
No. of shares out39m
No. of shares floating36m
No. of common shareholdersnot stated
No. of employees1757
Trading volume (10 day avg.)m
Profit before tax£30m
Earnings per share76.52p
Cashflow per share179.12p
Cash per share204.65p

Fidessa well placed to be a ‘dominant financial platform’, says Jefferies

The outlook is improving at financial markets software specialist Fidessa (FDSA) as it delivered a ‘solid set’ of full-year results, according to Jefferies.

Analyst Damindu Jayaweera reiterated his ‘buy’ recommendation and target price of £27.20 on the stock, which was trading up 3.5%, or 84p, at £24.84 at the time of writing.

‘Fidessa delivered a solid set of full year 2016 results, ahead of consensus expectations, helped in part by foreign exchange tailwinds,’ he said.

‘Business outlook is improving with a clearer Mifid [European investment rules] timeframe in Europe and a US regime that will likely be friendlier to Fidessa’s end markets. Given these positive developments and an undemanding valuation, we reiterate our “buy” rating.’

He added that Fidessa’s ‘broad access to liquidity venues, multi-asset strategy and a class-leading infrastructure’ meant it was ‘well positioned to become a dominant global platform for the financial markets’.

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Look up the shares

  • Hargreaves Lansdown PLC (HRGV.L)
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  • Capita PLC (CPI.L)
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  • Fidessa Group PLC (FDSA.L)
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  • AstraZeneca PLC (AZN.L)
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  • DFS Furniture PLC (DFSD.L)
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