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The Expert View: Lloyds, RSA and Capita
Our daily roundup of analyst commentary on shares, also including St James’s Place and Serco.
by Michelle McGagh on Feb 26, 2016 at 05:00
Investec: Lloyds could yield 8% in 2017
Shares in Lloyds (LLOY) have surged after the bank unveiled a big increase in dividend payments for 2015, and the lender’s upbeat outlook has given Investec confidence it could be yielding 8% by 2017.
Lloyds raced 13.3% higher to 70.5p yesterday, after the bank announced a final dividend for 2015 of 1.5p, taking the full-year payout to 2.25p, with a further 0.5p special dividend on top.
‘For us, the key news is the actual dividend and the outlook for capital accretion and dividends,’ said analyst Ian Gordon.
‘Lloyds is a “low/no growth” bank, but capital accretion is now guided to 2% per annum (previously 1.5%), giving us increased confidence in the validity of our existing 5p 2017 dividend forecast – an improbably high implied dividend yield of 8%. We expect a material upward share price correction to deal with that!’
Gordon retained his ‘buy’ rating on the shares and placed his target price under review.
Capita results are a mixed bag
Outsourcing giant Capita (CPI) has reported mixed preliminary results with no new contracts but ‘at least 4%’ like-for-like growth.
Jefferies analyst Kean Marden retained his ‘buy’ recommendation and target price of £14.00 on the shares, which rose 5.7% to £10.11 yesterday.
‘Prelim results are in-line with expectations. Full year 2016 estimated underlying earnings margin and organic revenue guidance has been reiterated – the bears feared downgrades – but the bid pipeline has pulled back to £4.7 billion. Consequently, we believe consensus earnings per share estimates are likely to remain broadly unchanged,’ he said.
Sentiment improving around RSA Insurance
Interest in RSA Insurance (RSA) has declined since Zurich withdrew its bid for the group and there is upside potential.
Numis analyst Nick Johnson retained his ‘hold’ recommendation and target price of 400p on the shares, which rose 9.8% to 433.2p yesterday.
‘Full-year 2015 results are ahead of expectations with operating profit before tax of £523 million beating consensus of £481 million. Underlying return on net trade assets for the year was 9.7%. The outperformance was mainly driven by the underwriting result, with reserve releases helping to deliver a significantly improved result for Canada. RSA has raised its cost saving target by £100 million to over £350 million by 2018,’ he said.
‘We think these are encouraging results that should be positive for sentiment, which had fallen back to low levels following the withdrawal of Zurich’s bid interest. We see valuation upside from current low levels.’
Upside potential at Serco
Outsourcer and detention services provider Serco (SRP) reported results slightly ahead of consensus and analysts are confident on the stock’s prospects.
Liberum analyst Joe Brent retained his ‘buy’ recommendation and target price of 135p following full year results that were ‘a tad ahead’. The shares jumped 16.4% to 95.1p yesterday.
‘Reiteration of £50 million profit guidance for 2016 and 2017. Our high earnings and low net debt unchanged at present, but consensus may come down,’ he said.
‘Order book reduced to £10 billion but encouragingly pipeline up from £5 billion to £6.5 billion. There is nothing here to scare the horses.’
SJP ‘thriving’ as demand for advice grows
Strong 2015 results show St James’s Place (SJP) is operating a robust business model and is ‘thriving’ in the current environment.
Shore Capital analyst Eamonn Flanagan reiterated his ‘buy’ recommendation but does not have a target price on the shares, which rose 2.3% to 876p yesterday.
‘SJP reported an excellent set of results for 2015 with the figures comfortably ahead of both our and the market’s expectations across all financial metrics, with the dividend up 20% as had been previously flagged by the group,’ he said.
He added that the company was benefiting ‘from the strength of the group’s positioning in a world where face-to-face advice is increasingly sought after and valued’.
‘We reiterate our “buy” recommendation on SJP. The business model remains robust and is clearly thriving in the current regulatory and financial environment,’ said Flanagan.
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Look up the shares
- Lloyds Banking Group PLC (LLOY.L)
- RSA Insurance Group PLC (RSA.L)
- Capita PLC (CPI.L)
- St. James's Place PLC (SJP.L)
- Serco Group PLC (SRP.L)