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The Expert View: Ocado, Sage & Telford Homes

Our daily roundup of analyst commentary on shares, also including Shawbrook and Kingfisher.

by Michelle McGagh on Jun 06, 2017 at 05:00

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Key stats
Market capitalisation£1,978m
No. of shares out630m
No. of shares floating418m
No. of common shareholdersnot stated
No. of employees10930
Trading volume (10 day avg.)3m
Profit before tax£12m
Earnings per share1.96p
Cashflow per share11.90p
Cash per share7.70p

Ocado European deal cheers investors

Ocado (OCDO) has defied its critics by announcing a long-awaited deal with a regional European retailer.

The online supermarket has announced a deal with an unidentified European retailer to use its ‘smart platform’. It will pay an up-front fee to Ocado plus ongoing fees based on the volume of products sold online. Ocado expects the agreement to start boosting the bottom line from 2019.

Analyst George Salmon said the deal was a ‘major fillip’ for Ocado and ‘getting a deal over the line is tangible evidence to counter its detractors’ and put concerns about the group’s potential profitability to bed.

‘It might be ahead of its rivals in terms of service, but the fact is that organic growth alone doesn’t justify the shares’ premium price to earnings ratio,’ he said.

‘The high valuation reflects the potential for the group to licence out its intellectual property to others, which in turn opens up the possibility of raking in chunky royalties year-in-year-out.’

After an early gain, the shares drifted 1.4p lower to 314.6p.

Key stats
Market capitalisation£7,704m
No. of shares out1,081m
No. of shares floating1,077m
No. of common shareholdersnot stated
No. of employees13741
Trading volume (10 day avg.)3m
Profit before tax£188m
Earnings per share17.35p
Cashflow per share22.75p
Cash per share24.49p

Numis downgrades Sage after disposal

Numis has downgraded software maker Sage Group (SGE) after the disposal of its US payments business, which analysts believe was sold at a low price.

Analyst David Toms downgraded his recommendation from ‘add’ to ‘hold’ with a target price of 756p on the stock, which fell 2.5% or 18p to 711p.

Sage received £202 million for the business and Toms said he was ‘surprised at the low price – 9 times earnings – and that the disposal was not to an industry player able to fulfil Sage’s ambition of partnering to provide a global payments platform to its customers’.

‘Management has previously indicated a desire to reinvest the proceeds into M&A, which might temper the dilution somewhat, although we double Sage will be purchasing anywhere close to the 9x price/earnings multiple on the disposal,’ he said.

‘Little change to target price, reflecting 7% lower earnings but 5% higher multiple given the ongoing strong performance of the stock market.’

Key stats
Market capitalisation£311m
No. of shares out75m
No. of shares floating61m
No. of common shareholdersnot stated
No. of employees219
Trading volume (10 day avg.)1m
Profit before tax£28m
Earnings per share36.60p
Cashflow per share37.43p
Cash per share51.31p

Battersea project underpins Telford Homes, says Peel Hunt

Housebuilder Telford Homes (TEF) has signed an agreement with Greystar to deliver 894 rental homes that will underpin its profit growth, says Peel Hunt.

Analyst Gavin Jago retained his ‘buy’ recommendation and target price of 505p on the stock after Telford inked the construction deal at Nine Elms, Battersea in south London.

‘This significantly expands Telford’s build-to-rent portfolio and further underpins the strong profit growth we forecast over the next few years,’ he said.

‘We leaves our forecasts unchanged for now and maintain our ‘buy’ recommendation…We forecasts profit before tax of £44 million for full year 2018 rising to £54 million by full year 2020. The shares have risen by 29% year-to-day, compared to the sector average of 24%. They trade ona ///13% discount to the sector averages.’

The shares held steady at 408p.

Key stats
Market capitalisation£849m
No. of shares out251m
No. of shares floating136m
No. of common shareholdersnot stated
No. of employees569
Trading volume (10 day avg.)2m
Profit before tax£65m
Earnings per share25.87p
Cashflow per share32.34p
Cash per share181.24p

Final offer for Shawbrook still too low, says Shore Capital

Consortium Marlin Bidco has made an improved and final cash offer for Shawbrook Group (SHAW) of 340p but Shore Capital still believes a fair value of 450p can be realised.

Analyst Gary Greenwood retained his ‘hold’ recommendation on the stock, which softened a penny to 339p, after Marlin Bidco – the consortium led by Shawbrook’s major shareholder Pollen Street Capital – made its increased offer.

Marlin owns shares and holds valid acceptances equivalent to 45.5% of Shawbrook’s issued share capital and needs at least 50% in order to gain control and a holding of more than 75% would see Shawbrook delisted.

‘We continue to believe that Marlin Bidco will eventually gain the number of acceptances required to gain control and that the increased cash offer should help it to achieve this,’ said Greenwood.

‘Although we believe a fair value of at least 450p can be justified, the high likelihood in our view of control being gained at a much lower price, in our view, means that we maintain a neutral stance.’

Key stats
Market capitalisation£7,242m
No. of shares out2,214m
No. of shares floating2,202m
No. of common shareholdersnot stated
No. of employees77000
Trading volume (10 day avg.)15m
Profit before tax£610m
Earnings per share26.96p
Cashflow per share38.14p
Cash per share35.49p

Jefferies convinced of Kingfisher’s potential

Jefferies has been on the road with B&Q owner Kingfisher (KGF) and remains confident of the group’s prospects despite recent disruption to sales.

Analyst James Grzinic retained his ‘hold’ recommendation and target price of 325p on the stock. He said the ‘non-deal roadshow’ confirmed that Kingfisher’s ‘ONE’ strategy to boost business is still on track.

‘A recent non-deal roadshow with Kingfisher added more colour to the supply chain disruption that impacted sales in recent weeks,’ he said.

‘While near-term trading downside will likely prevail, the group is staying the strategic course plotted through ONE. And is adopting remedial actions to moderate risks to earnings expectations. The ONE ambition remains intact.’

Kingfisher shares dipped 2.7p, or 0.8%, to 326.8p

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  • Ocado Group PLC (OCDO.L)
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  • Sage Group PLC (SGE.L)
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  • Telford Homes PLC (TELF.L)
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  • Kingfisher PLC (KGF.L)
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  • Shawbrook Group PLC (SHAW.L)
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