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The Expert View: Mitie, Centrica & Vodafone

Out daily roundup of analyst commentary on shares, also including Electrocomponents and CYBG.

by Michelle McGagh on Jun 13, 2017 at 05:01

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Key stats
Market capitalisation£1,020m
No. of shares out360m
No. of shares floating328m
No. of common shareholdersnot stated
No. of employees62674
Trading volume (10 day avg.)1m
Turnover£2,232m
Profit before tax£76m
Earnings per share21.06p
Cashflow per share30.90p
Cash per share25.50p

Liberum welcomes Mitie's margin story

Liberum has upgraded Mitie (MTO) after full-year results showed the outsourcing group is on course for further cost-cutting and margin growth.

Analyst Joe Brent upgraded his recommendation from ‘sell’ to ‘hold’ and increased the target price from 165p to 250p. This followed Mitie's full-year results, in which it posted an operating loss of £42.9 million while turnover remained stable at £2.1 billion.

Brent said trading was ‘broadly in line with estimates’ although exceptionals were a little higher than expected.

‘The order book is flat, but the pipeline is up,’ he said. ‘New leadership and a new strategy will be delivered quickly. Target margins of 4.5% to 5.5%, higher than our previous view of 4% to 5%, through cost savings and increased technology.’

Brent added that there was a reduced risk of a rights issue, with shares trading on 12x recovered earnings.

The shares were trading up 13.4%, or 33.25p, at 280p on Monday's close.

Key stats
Market capitalisation£2,661m
No. of shares out442m
No. of shares floating439m
No. of common shareholdersnot stated
No. of employees5769
Trading volume (10 day avg.)1m
Turnover£1,512m
Profit before tax£92m
Earnings per share20.76p
Cashflow per share27.34p
Cash per share21.19p

Electrocomponents poised for earnings growth, says Numis

Growth is on the cards for electronic and industrial component maker Electrocomponents (ECM) after the company ‘got its house in order’, according to Numis.

Analyst Julian Carter retained his ‘hold’ recommendation and increased the target price from 550p to 630p on the stock after what he described as an ‘impressive’ profit recovery and cash generation in 2017.

‘Unlike many industrial companies, substantial scope for further margin improvement still exists – well ahead of market expectations,’ he said.

‘But having ‘got its house in order’, management’s focus is increasingly on growth. Our base case is circa 10% earnings per share compound annual growth rate for full year 2017 to 2022, but we outline a plausible scenario in which it could deliver 19%.’

The shares were trading up 0.17%, or 1p, at 599.12p on Monday's close.

Key stats
Market capitalisation£2,399m
No. of shares out883m
No. of shares floating880m
No. of common shareholdersnot stated
No. of employees6718
Trading volume (10 day avg.)2m
Turnover£1,101m
Profit before tax£-198m
Earnings per share-22.50p
Cashflow per share-8.64p
Cash per share957.77p

Jefferies upgrades CYBG on lending expectations

Jefferies has upgraded CYBG (CYBG), the banking group that owns Clydesdale and Yorkshire banks, on expectations of an acceleration of lending in the low loan-to-value (LTV) space.

Analyst Kapilan Pillai upgraded his recommendation from ‘underperform’ to ‘hold’ and increased the target price from 205p to 254p on the stock. The move followed the announcement that the group does not need to secure an ‘internal ratings based’ approval for mortgages, which would have tightened lending criteria at the banks.

Pillai said the decision will provide a boost to the bank's lending division. 'CYBG is better able to compete in the low-LTV space with more attractively priced products,’ he noted.

‘Near term, CYBG is one of the few challengers able to benefit from the RBS fund helping banks to take Williams & Glyn’s SME clients, given its strong current account franchise,’ the analyst added.

Nevertheless, risks such as a ‘weak housing market [and] high unemployment’ cannot be underplayed.

The shares were trading up 0.8%, or 2.2p, at 267p at the time of writing.

Key stats
Market capitalisation£10,999m
No. of shares out5,493m
No. of shares floating5,483m
No. of common shareholdersnot stated
No. of employees38278
Trading volume (10 day avg.)25m
Turnover£27,102m
Profit before tax£1,672m
Earnings per share31.19p
Cashflow per share50.92p
Cash per share34.51p

Tory energy cap poses risk for Centrica, says Barclays

British Gas owner Centrica (CNA) is clouded by regulatory risk, according to Barclays.

Analyst Stephen Hunt retained his ‘equal weight’ recommendation for Centrica but increased the target price from 195p to 215p. The shares were trading up 0.7%, or 1.4p, at 202p at the time of writing.

Hunt is concerned about low wholesale energy prices and the risk of a price cap for ‘standard variable tariff’ customers, which featured in the Conservatives manifesto. Centrica derived more than 42% of net operating profit after tax from customers in 2016, so the move could prove detrimental.

He said there were two main questions that still need to be answered. Firstly, will the cap be constructed fairly? And second, how many customers will be impacted?

‘We see significant valuation risk for Centrica to both the up and downside depending on the outcome to these questions: and with the stock broadly reflecting a likely fair balance of the risks, we remain ‘equal weight’ for now.’

Key stats
Market capitalisation£59,711m
No. of shares out26,624m
No. of shares floating26,516m
No. of common shareholdersnot stated
No. of employees111556
Trading volume (10 day avg.)74m
Turnover41,843m EUR
Profit before tax-1,924m EUR
Earnings per share-0.07 EUR
Cashflow per share0.29 EUR
Cash per share0.49 EUR

The Share Centre backs Vodafone's 4G growth

The growth of 4G in developed markets plus the potential to expand into emerging markets means Vodafone (VOD) has strong growth potential, according to The Share Centre.

Analyst Helal Miah retained his ‘buy’ recommendation on the telecom. The shares were trading up 1.5%, or 1.5p, at 223.32p at the time of writing.

He said data services now represent 15% of revenues, forming part of the group’s ‘core strategy’. Uptake of 4G services is encouraging, with outdoor coverage in Europe increasing to 90%.

‘With emerging markets continuing to experience steady growth, a strategic partnership with Asian mobile alliance, Conexus, should increase the group’s presence in Asia,’ he said.

‘Vodafone continues to seek new areas of potential growth for its business and we believe to further drive business forward it needs to offer quad-play services – telephone, TV, broadband and mobile – as similar to its competitors.’

Miah also noted the dividend yield ‘should make this an attractive stock for income-seekers willing to take on a low to medium level of risk’.

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Look up the shares

  • Mitie Group PLC (MTO.L)
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  • Electrocomponents PLC (ECM.L)
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  • CYBG PLC (CYBGC.L)
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  • Centrica PLC (CNA.L)
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  • Vodafone Group PLC (VOD.L)
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