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The Expert View: HSBC, Imagination Technology & Sainsbury

Our daily roundup of analyst commentary on shares, including St Modwen and Serco.

by Michelle McGagh on Jul 05, 2017 at 05:01

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Key stats
Market capitalisation£145,256m
No. of shares out20,051m
No. of shares floating19,974m
No. of common shareholdersnot stated
No. of employees235854
Trading volume (10 day avg.)27m
Turnover32,788m USD
Profit before tax1,004m USD
Earnings per share0.05 USD
Cashflow per share0.21 USD
Cash per share8.60 USD

Berenberg downgrades ‘winner’ HSBC

Berenberg has downgraded ‘fully valued’ HSBC (HSBA) but still maintains the bank is a ‘long-term winner’.

Analyst James Chappell lowered his recommendation from ‘buy’ to ‘hold’ with a target price of 600p on the stock, which traded 0.7%, or 5p, lower at 724.6p on Tuesday afternoon.

Chappell said despite being positive on the stock, ‘everything has a price’ and the market is implying $13 billion of annual capital return ‘in perpetuity’ and so he believes the stock is ‘fully valued’.

‘HSBC is on our long-term winners list due to two main factors,’ he said. ‘Firstly, its focus on risk and return, and secondly, its focus on cutting costs in absolute terms. We see these two traits enabling HSBC to continue delivering sustainable capital return.’

These strengths would also help the bank ‘differentiate itself from its peers’ as interest rates rose and liquidity was removed from the banking system, he said.

Key stats
Market capitalisation£446m
No. of shares out284m
No. of shares floating246m
No. of common shareholdersnot stated
No. of employees1429
Trading volume (10 day avg.)5m
Turnover£122m
Profit before tax£-26m
Earnings per share-9.54p
Cashflow per share3.11p
Cash per share2.10p

Liberum: IMG leaves little to the imagination with bids in the offing

Micro chip designer Imagination Technologies (IMG) has returned to profit after a difficult year in which it lost its Apple deal, which Liberum said will make the group a more viable takeover target.

Analyst Janardan Menon retained his ‘buy’ recommendation and target price of 193p on the stock after full-year results came in ‘well above’ forecasts and market expectations. Sales were 5% ahead of forecasts and operating profit was 5.4% ahead at £29.2 million.

The company initiated a formal sale process at the end of June and is in discussions with potential bidders.

‘We expect a number of companies to be interested in the business, including Intel, Mediatek, Spreadtrum/Tsinghua, JAC Capital, CEVA, Synopsis, Samsung and Qualcomm,’ he said.

‘The strong results and the continuing demand for the company’s products even after the loss of Apple as a customer, is likely to be supportive of the sale process, providing greater confidence to potential buyers.’

Menon added that strength comes from customers outside of Apple which is ‘likely to push up the valuations of the company within the sale process’ and he expected the price to range ‘between a low end of 153p and a high end of 233p’.

At the time of writing yesterday, the shares had jumped 14p or nearly 10% to 157.5p.

Key stats
Market capitalisation£5,484m
No. of shares out2,190m
No. of shares floating2,080m
No. of common shareholdersnot stated
No. of employees51900
Trading volume (10 day avg.)9m
Turnover£26,224m
Profit before tax£359m
Earnings per share16.54p
Cashflow per share44.08p
Cash per share54.06p

Supermarket war overshadows Sainsbury’s sales, says Hargreaves

The recent heatwave helped boost sales at Sainsbury’s (SBRY) but when the heat subsides Hargreaves Lansdown says attention will switch back to the intense competition between supermarkets.

First quarter like-for-like sales from the supermarket grew 2.3%, and online sales at Sainsbury’s owned Argos rose 10% thanks to customers purchasing fans and paddling pools. The news lifted the shares 1%, or 2.7p, yesterday to 251.6p

Nevertheless, analyst Laith Khalaf said the bigger picture remained challenging for supermarkets as the weaker pound pushed up food prices and sapped shoppers’ spending power while e-commerce giant Amazon circled the sector.

‘The turf war the big supermarkets have been fighting against may start to look like a schoolyard skirmish if Amazon decides it wants a piece of the UK grocery market,’ he said.

‘Little wonder then that the big UK supermarkets are turning to new areas to try to eke out a living. Sainsbury’s purchase of Argos looks to be delivering results and the supermarket is reportedly in talks to buy the convenience chain NISA to try and broaden its footprint.’

Key stats
Market capitalisation£801m
No. of shares out222m
No. of shares floating182m
No. of common shareholdersnot stated
No. of employees345
Trading volume (10 day avg.)m
Turnover£288m
Profit before tax£53m
Earnings per share22.05p
Cashflow per share22.42p
Cash per share1.89p

Good progress at St Modwen, says Numis

Half-year results from St Modwen (SMP) show the property developer making good progress against its targets, says Numis Securities, which believes the shares could be attractive to new investors.

Analyst Chris Millington retained his ‘buy’ recommendation and target price of 432p on the stock, which shed a penny to trade at 360p yesterday afternoon.

Millington said at their current price the shares stood at a 23% ‘discount’ to his forecast net asset value for November 2018 which he said ‘represents an attractive level for investors to get exposure to a company which is reducing leverage and improving returns, which we think can rise to c.10% return on equity over time’.

Millington said the half-year results were ‘robust and highlight the benefits of its diversified asset platform’.

‘With St Modwen making good progress against its strategic targets, we expect the outlook to be characterised by falling leverage and improving returns driven by the group’s residential and commercial development activities,’ he said.

Key stats
Market capitalisation£1,242m
No. of shares out1,099m
No. of shares floating1,078m
No. of common shareholdersnot stated
No. of employees43176
Trading volume (10 day avg.)2m
Turnover£3,011m
Profit before tax£17m
Earnings per share1.54p
Cashflow per share6.24p
Cash per share16.10p

Shore Capital: investment case building at Serco

Long-term risks remain at government outsourcing giant Serco (SRP) but Shore Capital predicts a return to positive earnings growth next year.

Analyst Robin Speakman retained his ‘hold’ recommendation on the stock, which added just over a penny to 113p at the time of writing yesterday afternoon.

Speakman was conscious of the risks remaining from ‘past contract book delivery’ but said the ‘firmer operating base foundations’ means the financial environment will be better from 2018.

‘Next year we see a return to positive earnings growth from the forecast nadir of full-year 2017,’ he said.

‘Serco remains high risk at present, in our view, but we can now see better times ahead and firmer forecasts: silver linings then. “Hold” for the present, given still stretched valuation metrics, but we can perceive an investment case beginning to build now.’

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Look up the shares

  • HSBC Holdings PLC (HSBA.L)
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  • Imagination Technologies Group PLC (IMG.L)
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  • J Sainsbury PLC (SBRY.L)
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  • St. Modwen Properties PLC (SMP.L)
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  • Serco Group PLC (SRP.L)
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