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The Expert View: Hargreaves, Vodafone and EasyJet

Our daily roundup of analyst commentary on shares, also including CYBG and Jackpotjoy.

by Michelle McGagh on May 16, 2018 at 05:00

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Key stats
Market capitalisation£9,128m
No. of shares out474m
No. of shares floating260m
No. of common shareholdersnot stated
No. of employees1043
Trading volume (10 day avg.)1m
Profit before tax£265m
Earnings per share44.57p
Cashflow per share45.92p
Cash per share54.82p

Hargreaves’ ‘significant’ premium justified, says Numis

There has been stock market turbulence this year but Hargreaves Lansdown (HRGV) still justifies its significant premium valuation, says Numis.

Analyst James Hamilton retained his ‘hold’ recommendation and increased the target price from £16.55 to £18.61 after a trading update from the online stockbroker. The shares rose 2.2% to £19.16 yesterday.

Hamilton upped his profit forecasts by 2.2% for the year and 6.5% for next year after Hargreaves reported revenue of £150.6 million, and net inflows of £3.3 billion for the first four months of the year ‘despite the volatile and weak market conditions’.

‘These forecast increases take into account the increased level of investment into the helpdesk, operations, and technology teams, as well as digital marketing,’ he said.

‘As a consequence of our forecast upgrades, our target price increases...The structural growth story remains on track for the D2C platform industry, where Hargreaves is the category killer. Consequently, we believe Hargreaves justifies its significant premium valuation.’

Key stats
Market capitalisation£52,933m
No. of shares out26,676m
No. of shares floating26,586m
No. of common shareholdersnot stated
No. of employees111556
Trading volume (10 day avg.)51m
Turnover42,007m EUR
Profit before tax12,170m EUR
Earnings per share-0.07 EUR
Cashflow per share0.29 EUR
Cash per share0.50 EUR

Vodafone changes direction of travel

The decision by Vodafone (VOD) to step away from emerging markets and focus on Europe will ensure the telecommunications group looks very different under its new chief executive Nick Read, according to Hargreaves Lansdown.

The telecoms giant used its interim results to announce Vittorio Colao was stepping down after a decade and would be replaced by chief financial officer Read. It also reported earnings growth of 4.2% to €14.7 billion (£13 billion).

The shares fell 4% to 198.9p on the news. Analyst George Salmon said the results showed ‘reasonable underlying progress’ but the main story was ‘the direction of travel’ as it steps away from emerging market growth to focus on Europe, with a €18.4 billion deal to buy European assets from Liberty Global.

‘At present, this looks to be no bad thing,’ said Salmon. ‘The Liberty deal will come with significant cost reduction and cross-selling opportunities, and opens up new growth opportunities in central and Eastern Europe.’

Key stats
Market capitalisation£6,906m
No. of shares out397m
No. of shares floating260m
No. of common shareholdersnot stated
No. of employees11655
Trading volume (10 day avg.)2m
Profit before tax£603m
Earnings per share76.83p
Cashflow per share125.95p
Cash per share334.33p

Liberum: EasyJet shares already taken off on

Any positive earnings momentum that budget airline EasyJet (EZJ) will benefit from this year has already been priced into the shares, says Liberum.

Analyst Gerald Khoo retained his ‘sell’ recommendation and target price of £12.50 on the stock after interim results came in ahead of estimates, with full-year guidance implying a 10% uplift to consensus forecasts.

‘Competitor airline failures helped the pricing environment over the winter, more than offsetting a disappointing cost performance on severe winter weather disruption,’ he said.

‘Full-year profit before tax outlook implies a c.10% uplift to consensus at the mid-point. The supportive capacity environment seems set to continue, although the cost outlook remains disappointing. We see the positive earnings momentum as at least partially priced in already.’

The shares rose 3.3% to £17.41 yesterday.

Key stats
Market capitalisation£2,706m
No. of shares out885m
No. of shares floating881m
No. of common shareholdersnot stated
No. of employees6040
Trading volume (10 day avg.)3m
Profit before tax£527m
Earnings per share17.31p
Cashflow per share30.43p
Cash per share1,090.42p

Shore Capital: twist in the CYBG tale

Shore Capital was already expecting CYBG (CYBGC), the banking group that owns Clydesdale and Yorkshire banks, to boost returns but the bid for Virgin Money puts a ‘twist’ on the tale.

Analyst Gary Greenwood retained his ‘hold’ recommendation and ‘fair value’ price of 290p on the shares, which fell 5.5% to 305.6p yesterday on news of a first-half loss of £76 million.

Although he believes the investment case for CYBG is ‘driven by a strategy of increasing return on equity to double-digit levels’ this is already priced in.

‘However, the provisional all share offer for Virgin Money…has put a new twist on the story,’ he said. ‘Combining these two entities has strategic logic and could generate significant cost synergies, but it is not without material execution risk.

‘As such, we think it is by no means certain that CYBG will make its proposal formal… we think it may need to sweeten its offer to get the recommendation of Virgin Money’s management.’

Key stats
Market capitalisation£612m
No. of shares out74m
No. of shares floating59m
No. of common shareholdersnot stated
No. of employees209
Trading volume (10 day avg.)m
Profit before tax£80m
Earnings per share-91.92p
Cashflow per share-6.57p
Cash per share79.70p

Jackpotjoy edges closer to divi payout, says Berenberg

Digital bingo company Jackpotjoy (JPJ) is ‘undeservedly cheap’, says Berenberg.

Analyst Roberta Claccia retained her ‘buy’ recommendation and target price of £11.50 on the shares following a ‘solid’ first quarter update, with revenues up 13% year-on-year at £80.7 million, beating her expectations. The shares were flat at 828p yesterday.

‘We continue to think that current trading multiples do not reflect the full value of the shares, nor the deleveraging potential of the group,’ she said.

‘We expect first quarter numbers to help sentiment on the stock, with future catalysts driving a sustainable re-rating.’

She added that the company would be closer to achieving a ‘more sustainable net debt/earnings ratio, and therefore be in a position to start considering a dividend payment’.

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  • easyJet plc (EZJ.L)
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  • Hargreaves Lansdown PLC (HRGV.L)
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  • Jackpotjoy PLC (JPJ.L)
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  • Vodafone Group PLC (VOD.L)
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