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The Expert View: Lloyds, Persimmon and Whitbread

Our daily roundup of analyst commentary on shares, also including Pearson and Boohoo.

by Michelle McGagh on Apr 26, 2018 at 05:00

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Key stats
Market capitalisation£46,856m
No. of shares out72,113m
No. of shares floating71,804m
No. of common shareholdersnot stated
No. of employees67905
Trading volume (10 day avg.)158m
Turnover£16,006m
Profit before tax£11,652m
Earnings per share4.34p
Cashflow per share8.17p
Cash per share90.47p

Shore Capital expects ‘significant returns’ from Lloyds

First quarter results from Lloyds (LLOY) show profit is slightly lower than expected but Shore Capital is still positive about the bank’s ability to generate returns for shareholders.

Analyst Gary Greenwood reiterated his ‘buy’ recommendation with a ‘fair value’ of 80p on the stock after results showed adjusted profit before tax up 6% to £2 billion, just shy of his forecast £2.1 billion, with income and costs slightly worse than expected.

‘We reiterate our positive stance on Lloyds with a fair value of 80p – 21% upside – which we expect to leave broadly unchanged,’ said Greenwood.

‘We highlight the group’s relatively high adjusted return on tangible equity and its strong underlying capital generation, which we expect to support significant ongoing returns to shareholders in the form of dividends and share buybacks.’

The shares fell 1.7% to 65p yesterday.

Key stats
Market capitalisation£8,379m
No. of shares out311m
No. of shares floating298m
No. of common shareholdersnot stated
No. of employees4535
Trading volume (10 day avg.)1m
Turnover£3,422m
Profit before tax£968m
Earnings per share243.10p
Cashflow per share245.69p
Cash per share421.78p

Persimmon can weather any incoming storm, says Hargreaves

A supply-demand imbalance has powered house builder Persimmon (PSN) but Hargreaves Lansdown warned that it wouldn't last forever.

The company released a trading update ahead of its annual general meeting, reporting robust trading this year with in-line sales rates. Analyst George Salmon said ‘increasing profits, a sizeable bank of land ready for development and a housing market with a supply-demand imbalance means things don’t get much better’.

‘In a funny sort of way, that’s the worry,’ he said. ‘After all, history tells us these conditions won’t last forever.

‘However, the group has learned its lesson from the near-death experience of the last crisis, and has built up huge cash reserves during the more recent boom years. While another housing downturn would still likely hurt the shares, Persimmon’s formidable balance sheet should ward off any prospects of another white-knuckle ride as and when things change.’

The shares edged 4p higher to £26.94 yesterday.

Key stats
Market capitalisation£7,684m
No. of shares out184m
No. of shares floating180m
No. of common shareholdersnot stated
No. of employees42044
Trading volume (10 day avg.)1m
Turnover£3,106m
Profit before tax£806m
Earnings per share230.89p
Cashflow per share348.30p
Cash per share34.37p

Whitbread demerger of Costa ‘logical’, says Numis

Whitbread’s (WTB) plan to demerge Costa Coffee is ‘logical’ but Numis is expecting growth to fall slightly in 2019.

Analyst Tim Barrett retained his ‘hold’ recommendation and target price of £43.00 on the stock after full-year results at which Whitbread announced it would demerge Costa ‘as fast and as practical and appropriate’ but certainly within 24 months.

‘This is welcome clarity,’ said Barrett. ‘This seems entirely logical to us and it is possible that a degree of mergers and acquisition premium be attached to an independent Costa. In our view, equally important will be a return to growth for Costa, if it can re-position the UK estate away from retail locations and towards convenience while continuing the successful rollout of Costa Express.’

He added that the demerger would ‘overshadow’ the 5% annual growth reported by the company ‘in a difficult consumer environment’.

‘Growth was mainly achieved via a very strong performance on cost mitigation and space growth…In contrast, fourth quarter like-for-likes fell in both businesses and trading decelerated in Costa, meaning slight downside to full-year 2019.’

The shares edged 9p lower to £41.77 yesterday.

Key stats
Market capitalisation£6,217m
No. of shares out781m
No. of shares floating772m
No. of common shareholdersnot stated
No. of employees30339
Trading volume (10 day avg.)3m
Turnover£4,513m
Profit before tax£1,103m
Earnings per share49.28p
Cashflow per share129.53p
Cash per share66.08p

Pearson data scandal ‘unhelpful’, says Liberum

A data scandal at educational publisher Pearson (PSON) is not helpful to a company with data at the heart of its growth strategy, says Liberum.

Analyst Ian Whittaker retained his ‘sell’ recommendation and target price of 380p on the shares, which fell after it was revealed Pearson had conducted – without students’ permission – an experiment by inserting language into some of its software programmes and tracking response.

Pearson admitted it had done this but said the issue has been ‘mischaracterised’.

‘While we think the issue itself is probably trivial, two factors could make it more serious,’ said Whittaker. ‘If further cases emerge, especially if it involved schoolchildren’s data and given data and the use of it is at the heart of Pearson’s growth strategy, a scandal involving Pearson’s use of data will not be helpful.’

The shares recovered some of their losses yesterday, up 1.4% at 796.4p.

Key stats
Market capitalisation£2,046m
No. of shares out1,149m
No. of shares floating714m
No. of common shareholdersnot stated
No. of employees1301
Trading volume (10 day avg.)10m
Turnover£295m
Profit before tax£35m
Earnings per share2.16p
Cashflow per share2.59p
Cash per share6.26p

Boohoo valuation not reflecting opportunity, says Jefferies

The outlook for online fashion retailer Boohoo (BOOH) is better than the current valuation is factoring in, according to Jefferies.

Analyst Niraj Amin retained his ‘buy’ recommendation and target price of 280p on the stock after the company reported full-year sales up ‘an impressive 97% and earnings up 60%’. The shares jumped 17% to 180.7p yesterday on the news.

‘With 2019 set to be another strong year of 35-40% sales growth at a healthy 9-10% earnings margin, we believe the outlook for Boohoo is more encouraging than consensus and valuation currently presumes,’ he said.

Amin added that the company was supporting growth by ‘continuing to invest in marketing, technology, and warehousing’.

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  • Boohoo.Com PLC (BOOH.L)
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  • Lloyds Banking Group PLC (LLOY.L)
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  • Pearson PLC (PSON.L)
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  • Persimmon PLC (PSN.L)
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  • Whitbread PLC (WTB.L)
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