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The Expert View: HSBC, Hargreaves Lansdown and Bovis

Our daily roundup of analyst commentary on shares, also including Associated British Foods and Card Factory.

by Michelle McGagh on Feb 23, 2016 at 05:00

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Key stats
Market capitalisation£87,849m
No. of shares out19,686m
No. of shares floating19,626m
No. of common shareholdersnot stated
No. of employees259834
Trading volume (10 day avg.)35m
Turnover35,376m USD
Profit before tax9,105m USD
Earnings per share0.48 USD
Cashflow per share0.62 USD
Cash per share4.87 USD

*Correct as at 22 Feb 2016

Where was the profit warning from HSBC?

Analysts expressed surprise that HSBC (HSBA) failed to issue a profit warning ahead of final results as the numbers came in well below expectations.

Shore Capital analyst Gary Greenwood reiterated his ‘sell’ recommendation on the shares, which fell 0.9% to 445.6p yesterday.

‘HSBC’s final results have come in well below our own and consensus market expectations both on an adjusted and statutory basis,’ he said.

‘This is even more significant given that the group has already reported numbers for the first nine months and, with the group slipping into loss-making territory during Q4, we are somewhat surprised that management has not deemed it necessary to issue a profit warning ahead of the results.’

‘The shares have fallen sharply in recent months and are now trading in line with our last published fair value estimates of 450p, to which we see downside risk. We expect a negative market reaction to these results and reiterate our ‘sell’ stance accordingly,’ he said.

Key stats
Market capitalisation£5,969m
No. of shares out474m
No. of shares floating316m
No. of common shareholdersnot stated
No. of employees964
Trading volume (10 day avg.)1m
Turnover£395m
Profit before tax£157m
Earnings per share33.07p
Cashflow per share34.12p
Cash per share44.29p

*Correct as at 22 Feb 2016

Hargreaves Lansdown: little upside to price target

The proposition offered by online stockbroker Hargreaves Lansdown (HRGV) continues to strengthen but there is little upside to the share price.

Jefferies analyst Phil Dobbin retained his ‘hold’ recommendation and increased the target price from £10.73 to £12.03. The shares rose 1.9% to £12.61 yesterday.

‘We have trimmed our forecasts to reflect the impact of volatility on stockbroking commission and increased costs to reflect spend on new initiatives becoming business-as-usual costs in the future,’ he said.

‘We feel that Hargreaves’ strong client and asset retention explains its high valuation. On a rolled-forward discounted cashflow, we derive a price target of £12.03, leaving virtually no upside form the current share price.’

Dobbin added that general risks to the price target ‘derive from market performance and volatility, net flows, platform pricing and regulation’.

Key stats
Market capitalisation£1,182m
No. of shares out341m
No. of shares floating278m
No. of common shareholdersnot stated
No. of employees9197
Trading volume (10 day avg.)m
Turnover£353m
Profit before tax£33m
Earnings per share10.62p
Cashflow per share13.44p
Cash per share20.25p

*Correct as at 22 Feb 2016

Card Factory at a ‘very attractive’ entry point

Card Factory (CARDC) has a new chief executive, who takes over a business that is growing and a ‘compelling’ investment case.

Peel Hunt analyst Jonathan Pritchard retained his ‘buy’ recommendation and target price of 500p on the shares, which edged 1.7% higher to 346.7p yesterday.

‘The new chief executive joins Card Factory and inherits a growing business and compelling investment case,’ he said.

‘Karen Hubbard’s impressive CV suggests she will add plenty to the retail detail, but, from an overall strategic perspective, we trust she’ll keep the ship on its current course. There is always a degree of risk when senior executives change, but we believe that is more than reflected in the share price, which has been weak along with the sector.

‘A c.7% yield represents a very attractive entry point to us and there’s an outside chance of confirmation of further cash distributions at the prelims on 5 April.’

Key stats
Market capitalisation£1,190m
No. of shares out134m
No. of shares floating133m
No. of common shareholdersnot stated
No. of employees905
Trading volume (10 day avg.)1m
Turnover£809m
Profit before tax£105m
Earnings per share78.18p
Cashflow per share79.56p
Cash per share38.93p

*Correct as at 22 Feb 2016

Bovis takes a guarded view on 2016

House builder Bovis Homes (BVS) has reported an increase in profits but management is cautious about 2016.

Liberum analyst Charlie Campbell retained his ‘hold’ recommendation and target price of £10.05 on the shares, which fell 4% to 874p yesterday.

‘Bovis’ results are in line with expectations, with profit before tax up 20% to £160 million,’ he said.

‘Management has given a positive, but guarded, outlook for 2016, warning that the year will be second half-weighted and that labour constraints may still prove challenging. The shares look cheap against the sector, on 1.2x book versus 2.0x, but this is warranted by the lack of margin progression in 2015 and relatively low return on equity. We continue to see better value elsewhere, especially Bellway.’

Key stats
Market capitalisation£26,018m
No. of shares out792m
No. of shares floating302m
No. of common shareholdersnot stated
No. of employees124036
Trading volume (10 day avg.)1m
Turnover£12,800m
Profit before tax£532m
Earnings per share67.34p
Cashflow per share127.34p
Cash per share88.67p

*Correct as at 22 Feb 2016

'Reduce' Associated British Foods on high rating

Associated British Foods (ABF), owner of Primark, may report slightly lower full year results but it still remains a strong company.

Numis analyst Charles Pick retained his ‘reduce’ recommendation and increased his target price from £27.06 to £28.00. The shares rose 1% to £32.89 yesterday.

‘The 14 January trading update provided considerable detail on the first 16 weeks to 2 January. [Yesterday’s] update for the H1 period to 27 January features slightly amended full year guidance on foreign exchange,’ he said.

‘H1 adjusted earnings before interest and tax is expected to see 'some progress' but with H1 adjusted earnings per share ‘slightly lower’.

‘Target price boosted to £28.00… the 'reduce' tag is purely on ratings criteria: this remains a strongly-managed concern with Primark set to enter Italy in April and to boost its US store numbers this current year from the present two to eight.’

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Look up the shares

  • HSBC Holdings PLC (HSBA.L)
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  • Bovis Homes Group PLC (BVS.L)
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  • Hargreaves Lansdown PLC (HRGV.L)
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  • Associated British Foods PLC (ABF.L)
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  • Card Factory PLC (CARDC.L)
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