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The Expert View: HSBC, BHP Billiton and Ocado

Our daily roundup of analyst commentary on shares, also including Moneysupermarket and Grafton.

by Michelle McGagh on Feb 21, 2018 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£147,359m
No. of shares out19,996m
No. of shares floating19,926m
No. of common shareholdersnot stated
No. of employees232346
Trading volume (10 day avg.)30m
Turnover30,289m USD
Profit before tax13,488m USD
Earnings per share0.05 USD
Cashflow per share0.19 USD
Cash per share7.95 USD

HSBC doesn’t deserve ‘lofty’ rating, says Shore Capital

Improvements need to be made at HSBC (HSBA) in order to justify the current share price, says Shore Capital.

Analyst Gary Greenwood retained his ‘sell’ recommendation on the stock after ‘mildly disappointing’ full-year results, with profitability ‘a bit weaker than expected’.

He noted that while the dividend was maintained ‘there is no indication as to when growth may resume’ and ‘the group is signalling further share buybacks will be considered when appropriate but nothing concrete’.

‘All mildly disappointing, which is not good given the lofty rating it is trading on,’ he said. ‘We believe a significant further improvement in returns is required to justify the current share price, above and beyond our own and consensus’ current expectations.’

The shares fell 3.8% to 731.4p yesterday.

Key stats
Market capitalisation£79,396m
No. of shares out5,324m
No. of shares floating2,106m
No. of common shareholdersnot stated
No. of employees26146
Trading volume (10 day avg.)10m
Turnover27,340m USD
Profit before tax14,149m USD
Earnings per share0.79 USD
Cashflow per share1.89 USD
Cash per share1.91 USD

Investors want more from BHP, says Hargreaves

BHP Billiton (BLT) may have reported strong profits and increased dividends but investors hoping for more were left disappointed.

The oil giant reported a 16% increase in revenues in its first-half results, with underlying profits up 25% to $4.1 billion (£2.9 billion). The shares fell 5.2% to £14.81 yesterday.

‘It feels harsh to be criticising BHP, profits are increasing rapidly, debt is falling, and the interim dividend is well ahead of market expectations,’ said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

‘But investors were expecting more. BHP’s better performance is being driven by improved commodity prices, where are out of the company’s hands, while productivity, which it can control, is heading in the wrong direction.’

He added that management believed some of the lost ground would be made up in the second half and the company would ‘deliver some substantial improvements in productivity next year’.

‘That’s easier said than done though, and the results are not the start the group would have wanted.’

Key stats
Market capitalisation£3,381m
No. of shares out663m
No. of shares floating455m
No. of common shareholdersnot stated
No. of employees12799
Trading volume (10 day avg.)3m
Turnover£1,464m
Profit before tax£85m
Earnings per share0.16p
Cashflow per share11.53p
Cash per share24.54p

Potential for Ocado in US market, says Peel Hunt

Ocado (OCDO) has an opportunity to snap up a large share of the US market meaning there is ‘much more potential’ for the shares, says Peel Hunt.

Analyst James Lockyer retained his ‘buy’ recommendation and target price of 570p on the stock as he said Amazon’s presence in the food market was ‘likely to have a positive impact on Ocado before it has a negative impact’.

‘In the US, it’s a good time as any for Kroger or Walmart to consider a licence agreement with Ocado,’ he said. ‘It’s just a case of who gets there first and how tough the bidding duel gets between them.’

He added that ‘investor focus has been on country-exclusive deals but we would argue that there are potentially 50 state-exclusive deals, as well as one nationwide-exclusive deal, up for grabs in the US’.

‘Despite its run, Ocado still has much more potential to come,’ said Lockyer. The shares rose 4% to 507.2p yesterday.

Key stats
Market capitalisation£1,754m
No. of shares out536m
No. of shares floating527m
No. of common shareholdersnot stated
No. of employees598
Trading volume (10 day avg.)2m
Turnover£316m
Profit before tax£121m
Earnings per share13.40p
Cashflow per share18.41p
Cash per share8.14p

Moneysupermarket: Liberum looks for direction

Liberum believes Moneysupermarket (MONY) is a well-run business but there are questions about transparency and the future direction of the price comparison business.

Analyst Ian Whittaker reiterated his ‘hold’ recommendation and reduced his target price from 340p to 335p ahead of 2017 results. The shares were flat at 326.7p yesterday.

‘The company already guided to an adjusted operating profit range for 2017 so we do not expect any surprises there,’ he said. ‘What we should get though is an idea from the chief executive on what his plans are for the company moving forwards.’

He added that the company was ‘very well run and we like the management team but we do have issues over the barriers to entry in the price comparison industry and the relative opacity of numbers’.

Key stats
Market capitalisation£1,970m
No. of shares out245m
No. of shares floating217m
No. of common shareholdersnot stated
No. of employees11809
Trading volume (10 day avg.)m
Turnover£2,507m
Profit before tax£174m
Earnings per share39.44p
Cashflow per share55.42p
Cash per share84.25p

Berenberg upgrades Grafton on ‘impressive’ growth

Berenberg has upgraded builders’ merchants Grafton (GFTU) after the rollout of Selco branches that has triggered ‘impressive’ growth.

Analyst Lushanthan Mahendrarajah upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 800p to 920p. The shares jumped 4.3% to 794.5p yesterday.

He said that nine months ago when a rating was initiated, ‘we concluded that the accelerated rollout of Selco branches would allow Grafton to outgrow other UK merchants’.

‘Nonetheless, we were cautious given the underlying UK repair, maintenance and improvement market as well as the detrimental impact on margins from new immature Selco branches,’ he said.

However, the upgrade to earnings guidance for 2017 as well as the impressive like-for-like growth demonstrated by the UK merchanting business has made us reassess out view.’

He added that the ‘recent pull-back in the shares provide an attractive entry point’.

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  • HSBC Holdings PLC (HSBA.L)
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  • BHP Billiton PLC (BLT.L)
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  • Ocado Group PLC (OCDO.L)
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  • Moneysupermarket.Com Group PLC (MONY.L)
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  • Grafton Group PLC (GFTU_u.L)
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