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The Expert View: Lloyds, Connect and Renishaw

Our daily roundup of analyst commentary on shares, also including Genus and Smurfit Kappa.

by Michelle McGagh on Jan 30, 2018 at 05:00

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Key stats
Market capitalisation£51,410m
No. of shares out72,054m
No. of shares floating71,758m
No. of common shareholdersnot stated
No. of employees70255
Trading volume (10 day avg.)151m
Turnover£16,620m
Profit before tax£11,821m
Earnings per share2.91p
Cashflow per share6.74p
Cash per share103.78p

Insurance business to boost Lloyds, says Jefferies

Jefferies is excited by the potential for the UK bulk annuity market to boost Lloyds (LLOY) earnings through its Scottish Widows insurance business.

Analyst Joseph Dickerson retained his ‘buy’ recommendation and target price of 91p on the shares, which were trading at 71.6p yesterday.

‘Investors are keen to hear more about Lloyds’ insurance business,’ he said. ‘We researched the opportunity in UK bulk annuities and conclude that the secular growth opportunity warrants capital allocation.

‘And, if Scottish Widows could achieve Lloyds’ natural market share in other products, there is a c.6% uplift to group earnings per share and £3 billion of value creation over five years.’

He added that the banking backdrop remained ‘supportive’.

Key stats
Market capitalisation£185m
No. of shares out248m
No. of shares floating241m
No. of common shareholdersnot stated
No. of employees5951
Trading volume (10 day avg.)1m
Turnover£1,594m
Profit before tax£79m
Earnings per share10.93p
Cashflow per share24.05p
Cash per share2.22p

Connect still a ‘buy’ despite profit warning, say Shore Capital

Investors in parcel delivery business Connect Group (CNCTC) have been hit by a profit warning after a long list of failures but Shore Capital still believes the share price is justified.

Analyst Martin Brown reiterated his ‘buy’ recommendation on the shares, which were trading at 74.5p yesterday, down 29% after last week’s warning.

He said the recent profit warning and ‘stumbling block’ in the sale of Connect Books were ‘yet another blow to investors’. Connect had been due to sell its books division to Aurelius, but announced last week the German investors had pulled out of the deal.

‘We recently commented that while we agreed with the new strategy of focusing on early distribution and mixed freight, the long list of strategic failures over the years meant we believed investors should wait to see some delivery first,’ he said.

‘A cut to profit before tax guidance was not the delivery we or investors were looking for. Connect’s diversification strategy has now failed to deliver on all fronts.’

However, he added that ‘in terms of the share price, the reality is that the current price can be justified by the core news and media business alone’.

Key stats
Market capitalisation£3,571m
No. of shares out73m
No. of shares floating34m
No. of common shareholdersnot stated
No. of employees4530
Trading volume (10 day avg.)m
Turnover£537m
Profit before tax£168m
Earnings per share141.35p
Cashflow per share192.86p
Cash per share71.36p

Renishaw trading above fair value, says Peel Hunt

Engineering company Renishaw (RSW) delivered strong interims but Peel Hunt believes the shares are still trading above fair value.

Analyst Henry Carver retained his ‘reduce’ recommendation but increased the target price from £42.00 to £46.00. The shares were trading at £49.24 yesterday, down 13% since last Thursday’s update.

‘The interims on Thursday last week confirmed trading at Renishaw had been strong, but clearly the market was expecting more, as the share price fell more than 10% on the day,’ he said.

‘We have been thinking for some time that the shares had been getting ahead of the story and, having updated our numbers and increased our target price, we still feel they are trading above fair value.’

He said there was no question about the quality of the business ‘and that a premium multiple is justified’ but said it was ‘not immune from shocks’.

Key stats
Market capitalisation£1,493m
No. of shares out62m
No. of shares floating61m
No. of common shareholdersnot stated
No. of employees2535
Trading volume (10 day avg.)m
Turnover£459m
Profit before tax£62m
Earnings per share53.05p
Cashflow per share87.82p
Cash per share43.33p

The Share Centre: Genus engineering long-term growth

Animal genetics company Genus (GNS) is set to benefit from rising global demand for pork, beef and milk, according to The Share Centre.

Rising incomes in developing countries mean more people will be demanding meat and animal products and Genus, so a company ‘that provides help for farmers to improve efficiency and the quality of its stock looks well-positioned for the longer term’, said analyst Helal Miah.

Genus, which provides genetics and reproduction services, has ‘reassured investors that trading is in line… and that markets remain generally favourable’.

‘This is a company that is establishing a niche for itself across the globe,’ said Miah. ‘The share price has moved higher since the results, hitting an all-time high in November, as analysts get excited about its gene editing program. As a result, we would recommend Genus as a medium to higher risk, long-term growth “buy” for investors.’

Smurfit Kappa trading at a discount to peers, says Numis

Corrugated packaging company Smurfit Kappa (SKG) is trading on ‘modest’ multiples considering the favourable trading environment, says Numis.

Analyst Kevin Fogarty retained his ‘add’ recommendation and raised his target price from £26 to £28. The shares were up 2.5% at £25.92 yesterday.

The group will report 2017 results on 7 February and Fogarty predicts ‘input cost recovery had driven sequential margin improvement during the fourth quarter’.

‘Since management’s last update in November, the operating environment has been favourable, with currencies the key risk,’ he said.

‘The rerating process leaves the share price close to our previous target price. Our valuation is now based on 2018 forecasts and we raise our target price to £28 from £26 previously. Trading on 2018 price/earnings and enterprise value/earnings multiples of 12.8x and 7.7x, Smurfit Kappa trades at a discount to its London-listed peers, which looks modest in the current pricing environment.’

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Look up the shares

  • Lloyds Banking Group PLC (GB00B3KSBH82=TRE)
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  • Connect Group PLC (CNCTC.L)
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  • Renishaw PLC (RSW.L)
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  • Genus PLC (GNS.L)
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  • Smurfit Kappa Group PLC (SKG.L)
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