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The Expert View: Just Eat, BT and Games Workshop

Our daily roundup of analyst commentary on shares, also including Petra Diamonds and Photo-Me.

by Michelle McGagh on Jun 11, 2018 at 05:00

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Key stats
Market capitalisation£5,838m
No. of shares out681m
No. of shares floating587m
No. of common shareholdersnot stated
No. of employees2116
Trading volume (10 day avg.)3m
Profit before tax£159m
Earnings per share-15.17p
Cashflow per share-9.62p
Cash per share38.99p

Just Eat 2.0 can succeed, says Jefferies

Just Eat’s (JE) new growth strategy will involve a few pivots and strategic investments, but should ultimately spur the next phase of growth at the online takeaway deliver company, according to Jefferies.

Although analyst Giles Thorne described 2018 downgrades as ‘jarring’ in relation to the impressive earnings momentum at Just Eat, he concluded: ‘We see the story that emerges as stronger for it.’

Thorne reiterated his ‘buy’ recommendation, with a price target of 950p. Just Eat was trading at 858.4p on Friday.

Under chief executive Peter Plumb, who joined in September of last year, Thorne said change was looming for the business. He expects to see Plumb fulfil the vision of the prior chief executive to become the ‘operating system’ for restaurants.

‘We expect the new chief executive to unveil a much more systematic expansion of that organic delivery build-out. Equally, we expect mergers and acquisitions could also be a feature in the near term,’ Thorne said.

Jefferies’ 2018 expectations 'are ‘comfortably ahead’ of consensus on revenue, but 5% behind on earnings.

‘Expectations for investments around the Just Eat 2.0 thesis have us on a far more conservative margin trajectory,’ Thorne added.

Key stats
Market capitalisation£20,328m
No. of shares out9,922m
No. of shares floating8,365m
No. of common shareholdersnot stated
No. of employees105800
Trading volume (10 day avg.)29m
Profit before tax£7,505m
Earnings per share20.40p
Cashflow per share55.68p
Cash per share35.78p

Hargreaves: new BT chief must steady the ship

Outgoing BT (BT) chief Gavin Patterson’s successor will have a big task on their hands to restore investor confidence, according to Hargreaves Lansdown.

The firm’s comments follow the announcement that Patterson will step down later in the year after the board came to the decision that the struggling telecoms group requires new leadership.

George Salmon, equity analyst at Hargreaves, describes Patterson’s tenure as ‘a game of two halves’.

‘The rise of BT’s sport coverage, which has stepped up to challenge the dominance of Sky initially brought some good times for investors. However, it’s been a different story over the last two years,’ he said.

Since 2016, BT’s share price has been on a downward trend as investors digested the Italian accounting scandal and the Openreach fine – and generally grew disappointed with the lack of progress.

‘To be fair, it has not all been Patterson’s fault. But leadership have to shoulder some responsibility for the poor performance.

‘These fines and write-downs, together with a deteriorating performance from BT’s business-to-business divisions, have led to promises on the dividend being broken,’ he added.

With the shares trading near a six-year low, Salmon said the new chief’s first task would be to steady the ship.

Key stats
Market capitalisation£921m
No. of shares out32m
No. of shares floating30m
No. of common shareholdersnot stated
No. of employees1603
Trading volume (10 day avg.)m
Profit before tax£48m
Earnings per share94.50p
Cashflow per share126.13p
Cash per share55.73p

Peel Hunt questions Games Workshop’s momentum

Peel Hunt has welcomed a positive trading update from Games Workshop (GAW), but questions whether the shares can continue on an upwards trajectory.

The miniature war gaming company expects to deliver pre-tax profits of at least £74 million over the 53 weeks to 3 June, up from £38.4 million the previous year. Meanwhile, sales of £219 million were ahead of Peel Hunt’s forecast, helped by £10 million of royalties.

In response to the update, analyst Charles Hall retained his ‘hold’ recommendation on the stock with a target price of £24.50 per share. He pointed to a number of question marks during the second half of the year.

‘The shares have had a strong run. We continue to like the long-term prospects, but the shares feel toppy given that first quarter sales are likely to be lower than last year,’ Hall said.

The analyst believes second-half figures may appear to be disappointing in comparison to last year’s. This is because Warhammer 40,000, a table-top miniature war game, was launched last summer.

‘The company has plenty of new product launches over the summer, but these are unlikely to match a 40,000 product launch, hence our expectations that first quarter 2019 sales will be lower than the prior year,’ Hall concluded.

The shares slumped 7.3% to £28.28 on Friday.

Key stats
Market capitalisation£354m
No. of shares out533m
No. of shares floating508m
No. of common shareholdersnot stated
No. of employees5602
Trading volume (10 day avg.)2m
Turnover355m USD
Profit before tax117m USD
Earnings per share0.03 USD
Cashflow per share0.14 USD
Cash per share0.27 USD

Liberum downgrades Petra Diamonds

Liberum has downgraded Petra Diamonds (PDL), taking the view that the road to project delivery and deleveraging has taken too long.

Analysts Ben Davis and Richard Knights downgraded the diamond mining group to a ‘hold’ rating and slashed its price target from 115p to 70p. The move follows production downgrades, weaker pricing and the recent announcement of a $175 million right issue.

‘On our numbers we did not see the need for Petra to do a rights issue, given that the company is now in deleveraging mode,’ the analyst said.

Even if the targeted run rates are achieved, the analysts said weaker pricing and the strong rand had hurt Petra’s value proposition.

The shares fell 1.3% to 66.5p on Friday.

Key stats
Market capitalisation£434m
No. of shares out378m
No. of shares floating245m
No. of common shareholdersnot stated
No. of employees975
Trading volume (10 day avg.)3m
Profit before tax£70m
Earnings per share9.27p
Cashflow per share15.25p
Cash per share12.62p

FinnCap braces for weakness at Photo-Me

FinnCap has slashed its 2019 earnings forecast for Photo-Me (PHTM), as a result of challenging market conditions in Japan.

Analyst Guy Hewett reduced full-year 2019 earnings by 13% and full-year earnings per share by 7%, citing weakness in the Japanese market. He has a target price of 163p for the photo identification business. The shares were trading at 114.8p yesterday.

‘This change is due to more difficult market conditions in Japan, where there is increased competition and pricing pressure,’ Hewett said.

Nevertheless, he is encouraged that Photo-Me’s management has reacted, cutting both operating and manufacturing costs.

‘We value the shares on a 5% (near market) free cash flow yield in full-year 2019 plus the net cash we continue to forecast, setting a 163p target price,’ the analyst added.

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Look up the shares

  • BT Group PLC (BT.L)
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  • Games Workshop Group PLC (GAW.L)
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  • Just Eat PLC (JE.L)
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  • Petra Diamonds Ltd (PDL.L)
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  • Photo-Me International PLC (PHTM.L)
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