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The Expert View: Hiscox, Pearson and Impax

Our daily roundup of analyst commentary on shares, also including The Gym Group and Xeros.

by Michelle McGagh on Sep 19, 2017 at 05:00

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Key stats
Market capitalisation£3,501m
No. of shares out286m
No. of shares floating272m
No. of common shareholdersnot stated
No. of employees2300
Trading volume (10 day avg.)1m
Turnover£1,788m
Profit before tax£337m
Earnings per share115.97p
Cashflow per share123.48p
Cash per share232.69p

Hiscox: buying opportunity after Harvey, says Shore Capital

Insurer Hiscox (HSX) has set out the scale of its losses from hurricane Harvey but Shore Capital believes any share price weakness is a buying opportunity.

Analyst Eamonn Flanagan reiterated his ‘buy’ recommendation on the stock, which was down 2.8%, or 35p, at £12.16 at the time of writing.

Hiscox has estimated a net loss of $150 million (£111 million), which is within modelled expectations and comes from its reinsurance business.

Flanagan did not make any changes to his forecasts, but said he may downgrade estimates when the company released estimates for losses from hurricane Irma.

‘Any weakness on this news [is] a great buying opportunity,’ he said. ‘While Hiscox has developed a terrific retail business across the world, its firepower, franchise and abilities in catastrophe exposed lines remains formidable. As such, Hiscox should be a clear beneficiary of any rate hardening as a result of Harvey and Irma.’

Key stats
Market capitalisation£4,681m
No. of shares out823m
No. of shares floating813m
No. of common shareholdersnot stated
No. of employees32719
Trading volume (10 day avg.)3m
Turnover£4,552m
Profit before tax£-2,337m
Earnings per share-286.82p
Cashflow per share-241.90p
Cash per share180.38p

Liberum predicts another profit warning at Pearson

Liberum is expecting another profit warning from educational publisher Pearson (PSON) this year after chief financial officer Coram Williams’ cautious tone over full-year guidance.

Analyst Ian Whittaker reiterated his ‘sell’ recommendation and target price of 330p on the stock, which fell 3% on Friday after Williams’ appearance at an industry conference. At the time of writing, the shares were flat at 568p.

‘The key cause [of Friday’s share price fall] looks to be [Williams’] comments which suggested there was some uncertainty around the full-year guidance, going into the key selling and returns season in US higher education space, which is the single biggest driver of Pearson’s profitability,’ said Whittaker.

‘We expect another profit warning this year and, with Pearson already having announced another major restructuring programme, there seems little scope to cut costs further to maintain guidance.’

Key stats
Market capitalisation£151m
No. of shares out128m
No. of shares floating54m
No. of common shareholdersnot stated
No. of employees69
Trading volume (10 day avg.)m
Turnover£21m
Profit before tax£4m
Earnings per share3.65p
Cashflow per share3.82p
Cash per share22.61p

Peel Hunt: Impax acquisition is ‘transformative’

Impax Asset Management (IPX) has announced it is acquiring US boutique fund manager Pax World, which Peel Hunt said would be ‘transformative’.

Analyst Stuart Duncan retained his ‘buy’ recommendation and increased the target price from 111p to 140p after news that the acquisition will create a group with combined assets under management of £10.3 billion.The shares jumped 11.6% to 120p yesterday.

The sustainable investing specialists will pay $52.5 million for Pax, with another $37.5 million due in 2021 subject to performance.

‘This acquisition of Pax World is transformative for Impax, delivering the prospect of material earnings enhancement and benefits such as an increased scale and footprint in the US,’ said Duncan.,?

‘The deal is at an attractive price and has been sensibly structured with regards to retaining the key management of Pax.’

Key stats
Market capitalisation£277m
No. of shares out128m
No. of shares floating109m
No. of common shareholdersnot stated
No. of employees235
Trading volume (10 day avg.)m
Turnover£74m
Profit before tax£6m
Earnings per share4.44p
Cashflow per share15.44p
Cash per share3.76p

Don’t undervalue The Gym Group, says Berenberg

The Gym Group (GYM) has acquired 18 gyms in its latest deal but Berenberg said the business was still materially undervalued.

Analyst Owen Shirley reiterated his ‘buy’ recommendation and target price of 300p on the stock, after it acquired 18 gyms from Lifestyle Fitness for £20.5 million. The shares were trading up 0.6%, or 1.4p, at 215p at the time of writing.

Shirley said the group should now reach 109 sites by the end of the year and he believes it ‘can become a materially larger operation at scale’.

‘The Gym Group trades at 22.4x 2018 estimated price/earnings... however, we note that putting existing sites on mature earnings would see it trading at c.11.5x - materially undervaluing the rollout potential of the business,’ he said.

Key stats
Market capitalisation£253m
No. of shares out88m
No. of shares floating76m
No. of common shareholdersnot stated
No. of employees98
Trading volume (10 day avg.)0.00843m
Turnover£2m
Profit before tax£-21m
Earnings per share-25p
Cashflow per sharen/a
Cash per share33.64p

Xeros hits ‘major milestone’ with washing machine deal, says Jefferies

Cleaning technology company Xeros (XSG) has reached a major milestone as it signs a deal with a washing machine manufacturer to use its near-waterless technology, says Jefferies.

Analyst Ken Rumph retained his ‘buy’ recommendation and target price of 349p on the company after it signed its first ‘Symphony Project’ development agreement with a leading manufacturer of commercial washing machines. The shares were trading up 7.8%, or 21p, at 293p at the time of writing.

‘Xeros wanted to license its intellectual property and build recurring sales of its bead consumables, but had to put in the hard yards proving its tech,’ said Rumph.

‘News of the first Symphony model customer - open source tech to the washing machine [manufacturer] in exchange for supply contract - is, therefore a major milestone on the path to a capital-light model and profitability,’ he said.

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  • Hiscox Ltd (HSX.L)
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  • Pearson PLC (PSON.L)
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  • Impax Asset Management Group PLC (IPX.L)
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  • GYM Group PLC (GYM.L)
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  • Xeros Technology Group PLC (XSG.L)
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