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The Expert View: Next, Domino’s and Acacia Mining

Our daily roundup of analyst commentary on shares, also including Provident Financial and Associated British Foods.

by Daniel Grote on Jul 26, 2017 at 05:00

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Key stats
Market capitalisation£5,463m
No. of shares out147m
No. of shares floating138m
No. of common shareholdersnot stated
No. of employees30525
Trading volume (10 day avg.)1m
Profit before tax£635m
Earnings per share438.14p
Cashflow per share517.24p
Cash per share33.80p

Next remains under pressure

Berenberg isn’t predicting any let-up in the pressure facing Next (NXT) as the retailer prepares to issue a trading update next week.

Analyst Michelle Wilson cut her price target from £40 to £38.50 and maintained her ‘hold’ rating. The shares were trading at £37.26 yesterday.

She said its Retail division store sales were likely remain subdued while its online and catalogues Directory business faced a critical juncture.

‘We expect weak retail sales growth in the first quarter will continue into the second as stock availability issues remain an overhang,’ she said.‘It is a key period for the Directory business in our view, as the success of new initiatives, including Next Pay and Next Unlimited, begin to show.

‘While such measures, supported by cost-savings projects in the retail business, may protect near-term performance, we believe Next must reallocate capital away from its store estate and into its online business to protect longer term market share.’

Key stats
Market capitalisation£3,240m
No. of shares out148m
No. of shares floating144m
No. of common shareholdersnot stated
No. of employees3261
Trading volume (10 day avg.)1m
Profit before tax£263m
Earnings per share179.95p
Cashflow per share197.54p
Cash per share151.38p

Provident targets ‘too optimistic’

Liberum hasn’t seen anything in Provident Financial’s (PFG) half-year results to shift it from its ‘sell’ rating on the lender.

Provident Financial reported a 22.6% fall in profits for the first six months of the year, hurt by costs associated with the restructuring of its home credit division.

‘The company maintains its profit before tax guidance of £60 million for 2017, but we note Provident has not reiterated the £100 million target for 2018,’ said analyst Portia Patel.

She warned of downside risk to her own forecast of £82.5 million for next year, ‘which is already below guidance and consensus’.

‘We continue to believe Provident’s targets are too optimistic on the basis of higher than expected agent and customer attrition, rising impairments and a likely slower sales performance in the fourth quarter than the company expects.’

Patel has a £20 target price on the shares, which fell 2.9% to £22.32 yesterday.

Key stats
Market capitalisation£675m
No. of shares out410m
No. of shares floating148m
No. of common shareholdersnot stated
No. of employees3105
Trading volume (10 day avg.)2m
Turnover811m USD
Profit before tax73m USD
Earnings per share0.18 USD
Cashflow per share0.47 USD
Cash per share0.60 USD

Acacia battles ‘ludicrous’ $190 billion bill

The ‘humongous’ $190 billion tax bill handed to Acacia Mining (ACAA) is a ‘ludicrous’ move by the Tanzanian government, according to Shore Capital.

The bill, which relates to revenues at the company's Bulyanhulu and Buzwagi mines dating back to 2000 and 2007 respectively, and include $40 billion relating to alleged unpaid taxed plus $150 billion of penalties and interest. The total bill equates to 218 times the company’s market cap.

The government demand is the latest stage in a long-running battle with Acacia, after a presidential committee in May claimed the miner had not fully declared gold and copper extracted in the country. Shares in Acacia have lost more than half their value this year.

‘The assessments were apparently issued based on the patently dubious findings of the two recent presidential committees, copies of which reports have, mysteriously (or perhaps not, given the nature of developments), apparently yet to be shared with Acacia,’ said analyst Yuen Low.

‘Acacia referred its dispute with Tanzania to international arbitration before the bill preventing this became law. Of course, if need be, Acacia still has recourse to Tanzania’s courts… but we note that the President appoints the country’s judges.’

Key stats
Market capitalisation£23,121m
No. of shares out792m
No. of shares floating346m
No. of common shareholdersnot stated
No. of employees129916
Trading volume (10 day avg.)1m
Profit before tax£818m
Earnings per share103.41p
Cashflow per share165.23p
Cash per share70.11p

Primark’s US progress impresses Jefferies

Jefferies analyst James Grzinic is impressed at Associated British Foods (ABF) progress in expanding its Primark clothing stores into the US after a visit to Boston.

‘We visited progress at Downtown Crossing and popped into the newly opened store in Braintree, just south of the city. The former remains an impressive showpiece of Primark’s capability in the market, with great densities, driven by unrivalled prices, great product and an outstanding shopping experience versus local peers.’

Grzinic rates Associated British Foods a ‘buy’ with a £35 target price on the shares, yesterday trading at £29.23, and believes 2018 could be the year when plans for Primark’s longer-term US expansion are put in place.

‘While we do not expect short-term changes to Associated British Foods’ measured approach to Primark’s US expansion, we believe the premises for a fuller US engagement are falling into place,’ he said. ‘Could 2018 be the year when this becomes clearer?’

Key stats
Market capitalisation£1,273m
No. of shares out492m
No. of shares floating486m
No. of common shareholdersnot stated
No. of employees911
Trading volume (10 day avg.)3m
Profit before tax£65m
Earnings per share12.93p
Cashflow per share14.41p
Cash per share4.75p

Domino’s still hungry for growth

Peel Hunt has taken heart from the expansion of Domino’s Pizza (DOM), despite fears from some investors growth could slow.

Shares in the group fell 7.5% to 258.4p yesterday despite a 10.5% jump in half-year sales, amid worries over a squeeze in household spending and a raft of new store openings cannibalising its offering.

But analyst Douglas Jack, who rates the shares a ‘buy’ with a 400p target price, is staying optimistic.

‘Contrasting some commentators’ negative views, franchisees are accelerating, not slowing, their expansion plans, reflecting their superior understanding of the competitive backdrop and the company’s incentives to drive like-for-like sales,’ he said.

‘It is investing to drive customer order volume as well as operational and distribution efficiency for both itself and its franchisees. This should pay dividends over the medium term, on which basis we would buy the shares.’

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  • Next PLC (NXT.L)
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  • Provident Financial PLC (PFG.L)
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  • Acacia Mining PLC (ACAA.L)
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  • Associated British Foods PLC (ABF.L)
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  • Domino's Pizza Group PLC (DOM.L)
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