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The Expert View: Next, Sainsbury’s and Ladbrokes

Our daily roundup of analyst commentary on shares, also including Card Factory and Johnson Service Group.

by Michelle McGagh on Jan 07, 2016 at 05:00

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Key stats
Market capitalisation£10,443m
No. of shares out152m
No. of shares floating146m
No. of common shareholdersnot stated
No. of employees29469
Trading volume (10 day avg.)1m
Profit before tax£635m
Earnings per share417.97p
Cashflow per share493.22p
Cash per share180.21p

*Correct as at 6 Jan 2016

Next share price down 15% but still a ‘buy’

High street stalwart Next (NXT) may have seen its share price fall but the short-term pain will give way to long-term gain.

Berenberg analyst Michelle Wilson retained her ‘buy’ recommendation but reduced the target price 7% to £76.00. The shares were trading at £68.63 yesterday.

‘Next shares are down 15% since the beginning of December,’ she said. ‘While stock availability and competition online were flagged as contributing to poor performance in its peak trading statement, we understand unseasonably warm weather was the main driver.

‘We reduce our target price… and cut our earnings per share forecasts… to reflect stronger competition online and the impact of declining credit customers. However, we continue to believe Next is a leader in multi-channel retail with its full-price trading stance, strong store estate management and best-in-class delivery proposition, which help protect profitability.’

Key stats
Market capitalisation£1,198m
No. of shares out341m
No. of shares floating278m
No. of common shareholdersnot stated
No. of employees9197
Trading volume (10 day avg.)m
Profit before tax£33m
Earnings per share10.62p
Cashflow per share13.44p
Cash per share20.25p

*Correct as at 6 Jan 2016

Card Factory: top 2016 pick despite boss retirement

The retirement of Card Factory (CARDC) chief executive Richard Hayes is unexpected but his successor should reassure the market.

Liberum analyst Adam Tomlinson reiterated his ‘buy’ recommendation and target price of 450p on the stock following the news that former boss of discount retailer B&M Karen Hubbard will take over. The shares fell 2.9% to 348.4p yesterday.

‘The chief executive retirement is unexpected, however the market should be reassured by the appointment of a new chief executive with a deep and highly relevant skill set,’ he said.

‘Trading for the important Christmas period has been in line, which is clearly positive. More details to come on Tuesday 26 January. We see upside risk to our full-year forecasts.

‘We continue to believe that Card Factory offers long-term growth driven by a UK store roll-out, organic growth and supportive structural dynamics. The company is one of our top picks for 2016.’

Key stats
Market capitalisation£293m
No. of shares out331m
No. of shares floating322m
No. of common shareholdersnot stated
No. of employees4723
Trading volume (10 day avg.)m
Profit before tax£9m
Earnings per share2.90p
Cashflow per share12.97p
Cash per share0.07p

*Correct as at 6 Jan 2016

Johnson Service Group waves away minimum wage woes

Drycleaners Johnson Service Group (JSG) has confirmed it has already factored the increase in the minimum wage into its costs and profits will not be affected.

Investec analyst Andrew Gibb reiterated his ‘buy’ recommendation and target price of 100p on the shares, which rose 0.3% to 88.5p yesterday.

‘[The] pre-close trading update reveals that trading for full-year 2015 will be in line with current expectations, following another strong period of upgrade momentum,’ he said.

‘Importantly, the group has also confirmed that the impact of the national living wage is already captured by current consensus and therefore we make no changes to our profit forecasts. We continue to believe there is good upgrade momentum in the story.’

Key stats
Market capitalisation£1,252m
No. of shares out1,018m
No. of shares floating912m
No. of common shareholdersnot stated
No. of employees13954
Trading volume (10 day avg.)2m
Profit before tax£41m
Earnings per share4.44p
Cashflow per share12.85p
Cash per share6.72p

*Correct as at 6 Jan 2016

Ladbrokes upgraded as Coral merger edges closer

Bookmaker Ladbrokes (LAD) has been upgraded as it is expected to be a better businesses after the merger with Coral.

Numis analyst Ivor Jones upgraded his recommendation from ‘hold’ to ‘buy’ with a 150p target price. Ladbrokes inched 1.6% higher to 122.1p yesterday.

‘Ladbrokes Coral will be a better business than Ladbrokes on its own, with greater scale, enhanced skills in the online business and a reduced exposure to retail,’ he said.

‘Management has to prove it can meet the challenges of keeping the businesses on track until completion and achieve a reasonable price for retail disposals. We believe that as the acquisition is successfully executed, investor concerns over the balance sheet will gradually diminish and the share price will rise.’

Key stats
Market capitalisation£4,638m
No. of shares out1,924m
No. of shares floating1,839m
No. of common shareholdersnot stated
No. of employees48900
Trading volume (10 day avg.)7m
Profit before tax£-166m
Earnings per share-8.69p
Cashflow per share21.61p
Cash per share66.95p

*Correct as at 6 Jan 2016

Sainsbury’s bid for Home Retail: a tale of two messages

The news that supermarket giant Sainsbury’s (SBRY) has approached Home Retail has sent mixed messages to analysts.

Jefferies analyst James Grzinic retained his ‘hold’ recommendation and target price of 280p on the stock. Sainsbury’s was trading at 241.1p yesterday, down 5.4% since news of its rejected approach broke.

‘[The] news that Sainsbury’s has approached Home Retail could be construed in two opposing ways,’ he said.

‘Either this is a sign of a lack of confidence in prospects for the core business – exacerbated by the purchase of Argos, generally viewed as a structurally challenged entity – or a positive step in anticipating how the customer journey will develop in a multi-channel world.

‘Leverage and lack of expertise in this area suggests making a positive case won’t be easy.’

Grzinic added that ‘caution is likely to prevail for now’ and ‘given where sentiment is on UK grocers, the [bearish] view is likely to prevail’.

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  • J Sainsbury PLC (SBRY.L)
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  • Ladbrokes PLC (LAD.L)
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  • Next PLC (NXT.L)
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  • Card Factory PLC (CARDC.L)
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  • Johnson Service Group PLC (JSG.L)
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