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The Expert View: Imperial Brands, Compass & Greggs

Our daily roundup of analyst commentary on shares, including Renew Holdings and Grafton.

by Michelle McGagh on May 10, 2018 at 05:01

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Key stats
Market capitalisation£26,454m
No. of shares out954m
No. of shares floating949m
No. of common shareholdersnot stated
No. of employees33800
Trading volume (10 day avg.)3m
Turnover£30,247m
Profit before tax£4,057m
Earnings per share147.25p
Cashflow per share288.75p
Cash per share65.34p

Hargreaves: Imperial Brands picking up

Improvements in tobacco and developments in e-products means Imperial Brands (IMB) is starting to look like a favourable stock again, says Hargreaves Lansdown.

In its interim results the company painted an ‘optimistic outlook for the second half’, said Steve Clayton, manager of the HL Select UK Income Shares fund, pushing the shares up over 5% or 141p to £27.60 on Wednesday.

Clayton said it was ‘getting good traction’ in growth brands and priority markets, as well as pushing ahead with ‘next generation products’.

'It’s strong cash conversion means it can support its policy of raising dividends 10% a year ‘and the company believe ongoing momentum in the price and mix of sales the group is currently achieving will deliver a strong second half with revenue growth for the full year.

‘A forecast yield of almost 7% is way ahead of the market average and with sentiment turning more positive, the outlook for Imperial seems to be picking up,’ said Clayton.

Key stats
Market capitalisation£23,944m
No. of shares out1,584m
No. of shares floating1,577m
No. of common shareholdersnot stated
No. of employees588112
Trading volume (10 day avg.)3m
Turnover£22,568m
Profit before tax£2,144m
Earnings per share71.27p
Cashflow per share103.93p
Cash per share24.47p

Shore Capital: Compass to serve up bigger cash return

Shore Capital is expecting Compass Group (CPG), the world’s largest catering company, to return more cash to shareholders as it takes a more focused approach.

Analyst Greg Johnson retailed his ‘hold’ recommendation on the stock after ‘robust organic revenue growth’ in the first half of the year. Operating profit increased 4.5% to £875 million with earnings per share ahead by 9.8% to 39p, as well as a 10% increase to the dividend.

‘The outlook statement talks of greater focus, which we read as scope for further margin accretion opportunity, and returning surplus cash to shareholders,’ he said.

‘With further strong cashflow expected and the group’s current leverage at the target ratio, we expect the group could be in a position to return further cash at the year-end. We have a ‘hold’ stance on Compass with the rating about fair given the solid growth profile.’

Other investors judged the results had missed expectations and the shares fell 4.8% to close 75.5p down at £15.08.

Key stats
Market capitalisation£1,089m
No. of shares out101m
No. of shares floating92m
No. of common shareholdersnot stated
No. of employees21549
Trading volume (10 day avg.)m
Turnover£960m
Profit before tax£137m
Earnings per share55.72p
Cashflow per share108.08p
Cash per share53.88p

Peel Hunt downgrades overcooked Greggs

Cautious comments about consumer demand from management at Greggs (GRG) has pushed Peel Hunt to downgrade the high street baker.

Analyst Jonathan Pritchard cut his recommendation from ‘hold’ to ‘reduce’ and slashed his target price from £12 to 950p after the baker saw a ‘severe slowdown’ in March and April.

Pritchard believed poor weather was to blame but noted management had not used this as an excuse, pointing to lower high street footfall.

‘Management’s newly cautious rhetoric is the real surprise [in the results] and we’re taking the hint with our forecasts and rating,’ he said.

‘Footfall has been weak, even leaving aside the weather conditions, and management is not convinced that things will improve in the near term.’

Pritchard added that the ‘halo’ of safe haven status that Greggs enjoyed ‘has now slipped’ and ‘while turning negative after the shares have fallen 15% may appear to be ambulance-chasing, the shares still trade on nearly 17x price/earnings and that, for us, is too high’.

The shares tumbled 15%, or 192p, at £10.75.

Key stats
Market capitalisation£253m
No. of shares out65m
No. of shares floating61m
No. of common shareholdersnot stated
No. of employees2864
Trading volume (10 day avg.)m
Turnover£559m
Profit before tax£35m
Earnings per share19.88p
Cashflow per share39.35p
Cash per share11.13p

Numis upgrades Renew Holdings after acquisition

Numis Securities has upgraded engineering services group Renew Holdings (RNWH) following the £80 million acquisition of specialist rail contractor QTS.

Analyst Howard Seymour lifted his recommendation from ‘add’ to ‘buy’ with a target price of 500p, although investors took fright at the news, sending the shares 33p or 8% down at 380p.

Seymour said there were ‘two major positives’ to the deal; the first is that QTS operates a similar type of business so the acquisition ‘provides a range of complementary services and geographic potential that will offer significant organic opportunities for growth’.

The second positive is it is taking place ‘a year ahead of the structural shift in rail spending’ that will increase opex spend so ‘the enlarged group will have the highest relative exposure to this major opportunity of all our universe, so Renew will be the best way to invest in this area’.

Key stats
Market capitalisation£1,857m
No. of shares out237m
No. of shares floating217m
No. of common shareholdersnot stated
No. of employees12222
Trading volume (10 day avg.)1m
Turnover£2,716m
Profit before tax£202m
Earnings per share53.80p
Cashflow per share72.16p
Cash per share106.90p

Grafton shares ‘fair’ as sales disappoint, says Liberum

Builders’ merchants Grafton (GFTU) has revealed the impact of the bad weather on the first four months of the year and Liberum says the shares are fairly priced.

Analyst Charlie Campbell retained his ‘hold’ recommendation and target price of 830p on the stock, which slipped 18p to close 2.25% down at 781.5p.

The first four months of the year saw like-for-like sales growth up 1.3% compared to over 4% in the fourth quarter as the cold and wet weather took its toll.

Campbell said bad news around the UK economy and the Selco Builders Warehouse brand may worry markets.

‘Two negative statements may have caught the eye of the market, on UK competitiveness and slower like-for-likes in Selco,’ he said. ‘But in context, UK competitiveness is often cited, and the raised level may prove short lived, while Selco cannibalisation is in a sense deliberate as new branches add density to existing locations.’

However, Campbell maintained that the shares are ‘fairly valued’.

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  • Compass Group PLC (CPG.L)
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  • Grafton Group PLC (GFTU_u.L)
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  • Greggs PLC (GRG.L)
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  • Imperial Brands PLC (IMB.L)
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  • Renew Holdings PLC (RNWH.L)
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