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The Expert View: HSBC, Barclays and Domino’s

Our daily roundup of analyst commentary on shares, also including Micro Focus and Keller.

by Michelle McGagh on Aug 01, 2017 at 05:00

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Key stats
Market capitalisation£153,080m
No. of shares out20,146m
No. of shares floating20,070m
No. of common shareholdersnot stated
No. of employees235854
Trading volume (10 day avg.)23m
Turnover32,301m USD
Profit before tax989m USD
Earnings per share0.05 USD
Cashflow per share0.21 USD
Cash per share8.48 USD

Don’t get ‘addicted’ to HSBC payouts, warns Hargreaves

The promise of $2 billion (£1.5 billion) heading to shareholders from HSBC (HSBA) has boosted the bank but Hargreaves Lansdown has warned investors not to get ‘addicted’ to the payments.

Shares in HSBC rose 2.1% yesterday as the bank reported profits of $10.2 billion in the first half of the year, up 5% on the same period the year before. Although it held the dividend at $0.10 per share, it did announce a $2 billion share buyback scheduled for the second half of the year.

Analyst Laith Khalaf said the bank had had a good start to the year ‘helped by rising revenues, falling costs and fewer bad debts’.

‘The market has reacted positively, mainly because it likes the smell of $2 billion of cash heading back to investors,’ he said.

‘The dividend is looking safer than it did, though it’s not going to rise for the foreseeable future. However, HSBC is instead choosing to return cash to investors through share buybacks…in theory a share buyback scheme represents a less risky way for companies to return cash to shareholders because it’s a one-off bonus, rather than a regular payment like an ordinary dividend, and so doesn’t have to be maintained to the same degree.

‘However, markets can still get addicted to these schemes, with the associated withdrawal symptoms if they are taken away.’

Key stats
Market capitalisation£34,438m
No. of shares out17,034m
No. of shares floating16,967m
No. of common shareholdersnot stated
No. of employees119300
Trading volume (10 day avg.)34m
Turnover£14,541m
Profit before tax£1,562m
Earnings per share9.17p
Cashflow per share20.52p
Cash per share867.01p

Barclays capital position is secure, says Deutsche Bank

Barclays (BARC) has secured its capital position and Deutsche Bank believes the next step will be investing in higher returning businesses.

Analyst David Lock retained his ‘buy’ recommendation and target price of 229p on the shares, which fell 1.1% to 202.9p yesterday.

Although second quarter results were distorted by a ‘number of one-off items relating to the sale of Africa’, after adjusting for these the bank reported a 2% beat on core profit before tax.

‘Barclays is targeting more than 10% return on tangible equity in a “reasonable timeframe” along with a less than 60 cost/income ratio,’ said Lock.

‘Now that Barclays’ capital position is secure, we think a key part of this group strategy will involve reallocation of capital towards higher returning businesses in the international business –and we expect greater detail from management in coming quarters.’

Key stats
Market capitalisation£1,315m
No. of shares out492m
No. of shares floating486m
No. of common shareholdersnot stated
No. of employees911
Trading volume (10 day avg.)4m
Turnover£361m
Profit before tax£65m
Earnings per share12.93p
Cashflow per share14.41p
Cash per share4.63p

Domino’s Pizza: Peel Hunt still wants a slice of the action

Half year results from takeaway chain Domino’s Pizza (DOM) has given the bears enough to worry about but Peel Hunt said it would rather focus on the positives.

Analyst Douglas Jack retained his ‘buy’ recommendation and target price of 400p on the stock following interim results. The shares edged a penny lower to 266.4p yesterday.

‘In our view, the interim results had something for everyone,’ he said. ‘The bears can dwell on the second quarter’s weak like-for-like sales, the first half’s lack of margin growth…and the lower profits/store for franchisees. The bulls can highlight the first half’s perfect storm, the potential for new initiatives, the business’ cashflow and franchisees choosing to accelerate expansion even though Domino’s has cut incentives. We are with the franchisees and would prefer to look forward.’

He added that the UK business was ‘capable of recovering to c.5% like-for-like sales, which should trigger a rerating’.

Key stats
Market capitalisation£3,356m
No. of shares out149m
No. of shares floating148m
No. of common shareholdersnot stated
No. of employees1191
Trading volume (10 day avg.)m
Turnover289m USD
Profit before tax80m USD
Earnings per share0.47 USD
Cashflow per share0.61 USD
Cash per share0.14 USD

Barclays: use Micro Focus nervousness as a buying opportunity

Shares in Micro Focus (MCRO) have recovered after disappointing results but Barclays said there was still nervousness around the reverse takeover with HPE Software.

Analyst James Goodman retained his ‘overweight’ recommendation and target price of £26.00 on the mainframe computer specialist. He said shares had recovered following disappointing results for the UK’s second largest tech company in mid-July, which saw shares drop to a nine-month low. The shares fell 1% to £22.30 yesterday.

‘The reverse merger with HPE Software is a huge task and we didn’t expect it to be completely plain sailing; the hash reaction to the recent results therefore surprised us,’ said Goodman.

‘While the shares have recovered, it is clear there is nervousness around the transaction. Given this, we want to better flag upcoming catalysts, both positive and negative: August could see the pre-announcement of another weak HPE Software quarter – we think investors should be prepared for this – but September will see the deal finally complete.’

He added that ‘we would use any weakness as an opportunity and remain at ‘overweight’’.

Key stats
Market capitalisation£632m
No. of shares out72m
No. of shares floating69m
No. of common shareholdersnot stated
No. of employees10237
Trading volume (10 day avg.)m
Turnover£1,780m
Profit before tax£47m
Earnings per share64.75p
Cashflow per share165.98p
Cash per share117.22p

Keller’s self-help initiatives starting to bear fruit, says Jefferies

Performance at engineering company Keller (KLR) is improving thanks to self-help initiatives and Jefferies sees upside risk to the shares.

Analyst Anthony Codling retained his ‘buy’ recommendation and target price of £13.80 on the shares, which rose 7p to 879p yesterday.

‘Keller’s first-half performance and order book growth underpins our full year expectations,’ he said.

‘The group’s major US and European markets remain robust, and while elsewhere markets remain challenging, the group’s performance is improving as self-help initiatives start to bear fruit. The group currently trades on a full-year 2017 price/earnings ratio of 10x, and we see upside risks to the price of Keller’s shares.’

Codling noted that the risks facing Keller included ‘limited visibility over the majority of its revenues’ and the fact it was ‘heavily geared to the new-build construction sectors across the globe’.

‘Any slowdown in gross domestic product growth is likely to negatively impact construction demand and our estimates,’ he said.

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Look up the shares

  • HSBC Holdings PLC (HSBA.L)
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  • Barclays PLC (BARC.L)
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  • Domino's Pizza Group PLC (DOM.L)
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  • Micro Focus International PLC (MCRO.L)
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  • Keller Group PLC (KLR.L)
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