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The Expert View: ITV, Reckitt Benckiser and Stagecoach

Our daily roundup of analyst commentary on shares, also including Cranswick and Ascential.

by Daniel Grote on Jul 25, 2017 at 05:00

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Key stats
Market capitalisation£7,067m
No. of shares out4,025m
No. of shares floating3,583m
No. of common shareholdersnot stated
No. of employees6121
Trading volume (10 day avg.)13m
Profit before tax£449m
Earnings per share11.14p
Cashflow per share14.22p
Cash per share13.94p

‘Buy’ ITV on Love Island success

The success of ITV’s (ITV) Love Island reality TV show has highlighted the broadcaster’s ability to continue attracting younger audiences, according to Liberum analyst Ian Whittaker.

‘ITV2’s Love Island has proven to be one of the most talked about TV programmes of the summer,’ he said. ‘What it has also demonstrated is that young audiences will watch TV if the content is right and are not irrevocably switching from TV.’

Whittaker rates ITV a ‘buy’ and has a 320p target price on the shares, which fell 1.1% to 175.2p yesterday.

‘One of the major criticisms made against the TV broadcasters is that younger audiences are deserting TV,’ he said. ‘However, what is interesting for ITV2, is that is 16-24 audience increased 22% year-on-year in 2016 and is likely to increase again in 2017.’

Whittaker said Love Island was also helping to drive viewers to ITV’s high margin on-demand ITV Hub service, pointing to statistics showing three-quarters of the UK’s 16- to 24-year-olds were registered with the service, up from half in December, ‘with Love Island presumably being a major factor’.

‘ITV’s online video-on-demand revenues grew 22% year-on-year in the first quarter and, given their high margin, contribute disproportionately to profits,’ he said.

Key stats
Market capitalisation£53,839m
No. of shares out703m
No. of shares floating633m
No. of common shareholdersnot stated
No. of employees34700
Trading volume (10 day avg.)1m
Profit before tax£1,832m
Earnings per share256.48p
Cashflow per share288.81p
Cash per share109.27p

Reckitt can’t beat subdued expectations

Shore Capital delivered an underwhelming response to an update from Reckitt Benckiser (RB), as the consumer goods group battles weak revenues.

‘After a challenging first half period, through which sales growth has been below expectations and on a deteriorating trend, Reckitt Benckiser has issued results that also appear to be in line with reasonably subdued expectations,’ said analyst Darren Shirley.

Reckitt Benckiser reported a 1% drop in first half sales, although margins rose to 23.7%. The shares fell 3.8% to £76.28 yesterday.

Shirley said he saw little to reason to change his ‘hold’ rating on the shares.

‘We do not anticipate any material changes to forecasts post today’s update, other than stripping out food once the disposal to [US group] McCormick is complete (at a very attractive price and valuation for Reckitt we should add),’ he added.

Key stats
Market capitalisation£1,020m
No. of shares out573m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees39723
Trading volume (10 day avg.)2m
Profit before tax£32m
Earnings per share5.52p
Cashflow per share31.33p
Cash per share54.62p

Risks on the horizon for Stagecoach

Jefferies has highlighted the risks ahead of shareholders in train and bus operator Stagecoach (SGC), with analyst Joe Spooner rating the shares a ‘hold’, but acknowledging that ‘requires positive outcomes to key events’.

‘Our 190p sum-of-the-parts price target leaves us at “hold”,’ he said. ‘But we stay cautious with up to 65p of that event dependent: renegotiated East Coast contract (9p), some success in shortlisted UK rail bids (26p), rebuilding Megabus US profits (up to 30p),’ he said.

Spooner flagged potential disappointments in the company’s regional bus division, which accounts for 75% of non-rail profits.

‘Inflationary pressure on labour looks set to sustain, the offset of falling fuel costs has now largely played through and for revenues, even Stagecoach expects a “subdued” outlook short term,’ he said.

‘We prefer Go-Ahead, where we think successful event outcomes frame the upside rather than the status quo.’Shares in Stagecoach fell 1.8% to 178.5p yesterday.

Key stats
Market capitalisation£1,470m
No. of shares out50m
No. of shares floating47m
No. of common shareholdersnot stated
No. of employees5614
Trading volume (10 day avg.)m
Profit before tax£62m
Earnings per share123.73p
Cashflow per share182.92p
Cash per share8.14p

Peel Hunt eyes Cranswick upgrades

Peel Hunt sees the potential for upgrades to its stance on Cranswick (CWK) after the food manufacturer reported strong first quarter results.Analyst Charles Hall rates the company a ‘hold’ and has a £26 target price on the shares, which jumped 3.2% to £29.21 yesterday.

Cranswick reported a 27% jump in revenues in the three months to the end of June, with rising costs ‘mitigated during the period’.

‘The company has seen good growth across all categories, led by cooked meats, sausages and pastry, which have benefited from new contracts,’ said Hall.

‘Margins are lower than last year as strong volume growth partially offset the impact of higher pig prices, but should progressively improve as prices are passed on. We are not changing forecasts at this stage, but see potential for upgrades ahead.’

Key stats
Market capitalisation£1,379m
No. of shares out401m
No. of shares floating390m
No. of common shareholdersnot stated
No. of employees1557
Trading volume (10 day avg.)1m
Profit before tax£12m
Earnings per share2.90p
Cashflow per share14.38p
Cash per share15.45p

Numis ups Ascential forecasts after solid results

Numis has upped its target price on Ascential (ASCL) after a solid first half of the year for the events and information company.

Ascential reported a 7.2% jump in underlying revenue growth, helping the shares rise 3.8% to 350p yesterday. Numis analyst Gareth Davies raised his target price from 375p to 405p and kept his ‘buy’ rating on the stock.

While the group benefited from a strong euro over the period, a weaker dollar could have an impact over the second half of the year, but Davies nevertheless inched up his forecasts.

‘Profits and margins are ahead, primarily exhibitions and festivals, helped by a stronger euro,’ he said. ‘Whilst mindful of a weaker dollar to sterling in the second half our adjusted earnings per share [forecast] increases to 17.7p (previously 17p) in 2017 and 2018 to 19.3p (18.7p), with debt also down on strong cash generation.’

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  • Reckitt Benckiser Group PLC (RB.L)
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  • Stagecoach Group PLC (SGC.L)
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  • Cranswick PLC (CWK.L)
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  • Ascential PLC (ASCL.L)
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