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The Expert View: Hargreaves Lansdown, Next and Morrisons

Our daily roundup of analyst commentary on shares, also including Cineworld and Frontier Developments.

by Michelle McGagh on Aug 16, 2017 at 05:01

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Key stats
Market capitalisation£6,434m
No. of shares out474m
No. of shares floating241m
No. of common shareholdersnot stated
No. of employees970
Trading volume (10 day avg.)1m
Turnover£388m
Profit before tax£177m
Earnings per share37.26p
Cashflow per share38.44p
Cash per share44.11p

More growth to come for Hargreaves, says Numis

Hargreaves Lansdown (HRGV) has further scope for growth, according to Numis.

Analyst James Hamilton retained his ‘add’ recommendation and target price of £14.97 on the shares, which were trading at £13.44 at the time of writing.

Yesterday’s full-year results had largely been pre-announced. The company had already released some of the key figures and announced earlier this month that it would scrap its special dividend as a result of tougher capital requirements.

Profits came in at £265.8 million for the year to the end of June. Guidance had been between £265 million and £266 million two weeks earlier.

‘We believe there is a strong growth outlook for Hargreaves Lansdown with continued substantial net inflows and the potential for Hargreaves Lansdown savings to provide another substantial leg for growth,’ said Hamilton.

‘Given the passing of a special dividend, and that regulatory capital requirements only ever seem to increase, we expect Hargreaves Lansdown to distribute 85% of profit going forwards, continually boosting the group’s capital strength.’

Key stats
Market capitalisation£6,244m
No. of shares out147m
No. of shares floating138m
No. of common shareholdersnot stated
No. of employees30525
Trading volume (10 day avg.)1m
Turnover£4,097m
Profit before tax£635m
Earnings per share438.14p
Cashflow per share517.24p
Cash per share33.80p

Time to sell Next, says Berenberg

Berenberg has downgraded high street retailer Next (NXT), following a strong period of performance for its shares.

Analyst Michelle Wilson downgraded her recommendation from ‘hold’ to ‘sell’ after a 10% rally in the share price following better-than-expected second quarter results. The shares fell 3.03% to £42.55 on the news. Wilson cut her price target from £38.50 to £36.50.

‘We believe Next is burdened by its overspaced store estate, which restricts its ability to invest in areas that matter most to the consumer – product and free home delivery, leading to market share erosion,’ she said.

Although Next has been quick to recognise the opportunities online, the analyst believes it has failed to fully adapt its business model, instead focusing on short-term cashflow and profitability.

‘We believe offering free home delivery could reduce earnings before interest and taxation margin by circa 5% in the near term, but is ultimately necessary to maintain market share,’ she said.

Key stats
Market capitalisation£5,813m
No. of shares out2,354m
No. of shares floating2,270m
No. of common shareholdersnot stated
No. of employees42054
Trading volume (10 day avg.)7m
Turnover£16,317m
Profit before tax£305m
Earnings per share12.95p
Cashflow per share29.89p
Cash per share13.96p

Jefferies braced for positive interims from Morrisons

Jefferies expects interim results from supermarket chain Morrisons (MRW) will show ongoing progress, despite tough conditions during the second quarter.

Analyst James Grzinic retained his ‘hold’ recommendation and target price of 250p on the stock, which edged 0.71% higher to 247.35p yesterday.

‘We expect a healthy first-half update from Morrisons, with underlying operating cashflow progress of circa 7%,’ he said. ‘A toughening comparison base likely resulting in slowing second quarter like-for-like momentum but the interims should confirm Morrison’s continued progress across all objectives, with free cashflow and balance sheet progress, making the group well equipped to cope with an uncertain UK outlook.’

He added that the group had achieved a lot over the last few years, marked by an extensive overhaul of their shopping experience.

Key stats
Market capitalisation£1,955m
No. of shares out272m
No. of shares floating190m
No. of common shareholdersnot stated
No. of employees9946
Trading volume (10 day avg.)1m
Turnover£798m
Profit before tax£82m
Earnings per share30.30p
Cashflow per share51.96p
Cash per share20.85p

Peel Hunt: 2018 will be tricky for Cineworld

While Cineworld (CINE) stands to benefit from expansion and refurbishments, Peel Hunt warns the backdrop in 2018 will be ‘less helpful’.

Analyst Douglas Jack retained his ‘add’ recommendation and target price of 775p on the stock, which edged 3p lower to 712.3p yesterday.

Jack said the Cineworld strategy of expansion and major refurbishment is generating strong growth and returns. During the first half this was bolstered by a favourable weather backdrop and currency movements overseas.

‘The fourth quarter’s prospects are strong, but after that we expect the backdrop to be less helpful,’ he said. ‘Our target price, which reflects scope for an acquisition/cash return, anticipates the shares starting to de-rate.’

As trading conditions normalise, the analyst expects earnings growth will slow to 8-10% and dividends will grow at a similar pace’.

Key stats
Market capitalisation£253m
No. of shares out38m
No. of shares floating18m
No. of common shareholdersnot stated
No. of employees281
Trading volume (10 day avg.)m
Turnover£21m
Profit before tax£1m
Earnings per share4.06p
Cashflow per share14.36p
Cash per share25.25p

Liberum initiates coverage of Frontier Developments

Liberum has initiated coverage of Frontier Developments (FDEV) and expects the videogames developer can double revenues in 2019.

Analyst Andrew Bryant initiated coverage with a ‘buy’ recommendation and a target price of 850p on the shares, which jumped 6.15% to 655p on the news.

‘Frontier is at the forefront of a transformation of the gaming sector, with digital distribution enabling proven developers to move to a self-publishing model, by-pass traditional publishers and retailers, and go straight to the gamers,’ he said.

The recent investment by China’s leading internet company Tencent plus a third gaming franchise in the pipeline meant Bryant felt comfortable forecasting a ‘doubling of revenues in full-year 2019’. This, he said, helps to underpin the investment case.

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Look up the shares

  • Hargreaves Lansdown PLC (HRGV.L)
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  • Next PLC (NXT.L)
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  • WM Morrison Supermarkets PLC (MRW.L)
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  • Cineworld Group PLC (CINE.L)
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  • Frontier Developments PLC (FDEV.L)
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