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The Expert View: National Grid, Merlin and GoCompare

Our daily roundup of analyst commentary on shares, also including Lookers and Countrywide.

by Michelle McGagh on Nov 10, 2017 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£30,702m
No. of shares out3,395m
No. of shares floating3,261m
No. of common shareholdersnot stated
No. of employees22132
Trading volume (10 day avg.)10m
Profit before tax£5,327m
Earnings per share52.24p
Cashflow per share94.98p
Cash per share249.37p

Rate rise puts National Grid under pressure, says Hargreaves

An interest rate rise could put pressure on National Grid (NG) shares as investors migrate back into bonds, says Hargreaves Lansdown.

Half-year results from the electricity operator were as expected and the interim dividend was increased 2.1% to 15.4p, in line with setting the interim dividend at 35% of the prior full-year amount. The plan of paying annual increases at or above the rate of inflation also remains in place. The shares fell 2.5% to 904.2p yesterday.

Analyst George Salmon said the shares were ‘as steady as they come’ and the revenues from the US business were valuable to UK investors given weak sterling.

‘The black cloud on the horizon is a possible uptick in interest rates,’ he said. ‘Low rates have depressed yields in the bond market, leading some investors to switch out of bonds. National Grid’s dependable revenues and attractive yield, currently 5.1%, have proven a popular destination.’

He said a faster pace of interest rate rises ‘could see the great bond migration reverse’ and ‘if this proves to be the case, National Grid would likely come under pressure’.

Key stats
Market capitalisation£3,863m
No. of shares out1,020m
No. of shares floating699m
No. of common shareholdersnot stated
No. of employees19489
Trading volume (10 day avg.)6m
Profit before tax£451m
Earnings per share20.72p
Cashflow per share33.59p
Cash per share21.17p

Numis upgrades discounted Merlin Entertainments

Numis has upgraded Merlin Entertainments (MERL), arguing the Alton Towers was ‘untangling’ its issues.

Analyst Tim Barrett upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 454p on the stock, after third quarter results showed worse-than-expected trading in July and August, reflecting security concerns and the poor weather.

Barrett said the business was ‘trading only 18% above its initial public offering price from 2013, despite delivering 25% earnings per share growth’.

‘Seasonality may mean that a catalyst is absent until mid-2018,’ he said. ‘However, a break-up may be the ultimate catalyst: if performance remains inconsistent, a split of the asset-backed Legoland parks and resort theme parks divisions from the lower growth midway attractions may be the best way to unlock value.

The shares edged 0.9% higher to 379.5p yesterday.

Key stats
Market capitalisation£378m
No. of shares out418m
No. of shares floating306m
No. of common shareholdersnot stated
No. of employees172
Trading volume (10 day avg.)1m
Profit before tax£24m
Earnings per share3.76p
Cashflow per share4.14p
Cash per share4.40p

Peel Hunt: jump on undervalued GoCompare

Peel Hunt believes the ‘unwarranted’ fall in GoCompare’s (GOCO) rating presents a buying opportunity.

Analyst Malcolm Morgan reiterated his ‘buy’ recommendation and target price of 120p on the shares, which fell 2.2% to 91p yesterday.

‘Investors might not have spotted the recent shift in the 12-month forward price/earnings ratio relative of GoCompare versus Moneysupermarket,’ he said.

‘This now stands at under 70, a level last seen in late January 2017. Investors should take advantage of this rating differential.’

He said the shift had been caused by a rebound in Moneysupermarket shares as well as proposals to introduce a cap on standard variable energy tariffs.

‘GoCompare trades on forward price/earnings ratio of 12.8 times - the lowest for 11 months. For context if the recent price/earnings ratio relative high of 86 was restored today with no changes in the forward earnings per share of the Moneysupermarket share price, then the GoCompare share price would need to stand at 118p.’

Key stats
Market capitalisation£399m
No. of shares out397m
No. of shares floating300m
No. of common shareholdersnot stated
No. of employees9081
Trading volume (10 day avg.)2m
Profit before tax£102m
Earnings per share17.67p
Cashflow per share23.38p
Cash per share10.04p

Lookers driving ahead despite difficult markets, says Liberum

Car dealership Lookers (LOOK) is showing resilience in tough market conditions, says Liberum, which should help the shares gain back some of the recent losses.

Analyst Adam Tomlinson retained his ‘buy’ recommendation but reduced the target price from 175p to 145p following third quarter results that showed ‘solid performance’. The shares were up 1.5% at 99.8p yesterday.

He said the results highlighted ‘the resilience of Lookers’ business model and the quality of its management team’.

‘The robust performance comes in toughening market conditions and against strong comparatives from last year and stands out versus some less encouraging recent reporting by its peers,’ he said.

‘The performance in the used cars and aftersales divisions is reassuring and should help support group profits against the more uncertain outlook in the new segment. Overall, we expect the statement to be well received and with the shares down 18% since late September... we are hopeful of a positive reaction.’

Key stats
Market capitalisation£296m
No. of shares out238m
No. of shares floating232m
No. of common shareholdersnot stated
No. of employees10909
Trading volume (10 day avg.)m
Profit before tax£116m
Earnings per share8.03p
Cashflow per share23.26p
Cash per share20.95p

Countrywide helping itself in a tough housing environment, says Liberum

The housing market is in a tough place but Countrywide (CWD) is heading for a safe harbour thanks to some self-help, says Jefferies.

Analyst Anthony Codling retained his ‘hold’ recommendation but reduced his target price from 150p to 145p. The shares fell 3.1% to 124.8p yesterday.

‘The UK existing homes market has had a challenging year and we do not see much in the way of good news on the horizon,’ he said.

‘Against this backdrop Countrywide’s depth and breadth is allowing it to head toward a safe harbour for the year-end. We are reducing our earnings [estimate] by 4.3% in full-year 2017 and 3.9% in full-year 2018 and [a group] statement implies to us that the self-help is stabilising the group while the storm clouds remain.’

However, Codling noted the business, despite its broad diversification, was exposed ‘in many forms to the underlying UK housing market’.

‘Weakness in house prices, transactions or the private rented sector may lead to a reduction in our estimates,’ he added.

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Look up the shares

  • National Grid PLC (NG.L)
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  • Merlin Entertainments PLC (MERL.L)
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  • Gocompare.Com Group PLC (GOCO.L)
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  • Lookers PLC (LOOK.L)
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  • Countrywide PLC (CWD.L)
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