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The Expert View: Pearson, Royal Mail and St James’s Place
Our daily roundup of analyst commentary on shares, also including Halfords and Premier Foods.
by Michelle McGagh on Jan 22, 2016 at 05:00
Pearson keeps divi but launches company review
Educational publisher Pearson (PSON) is maintaining its final dividend but has announced a ‘bottom-up review’ of the company.
Shore Capital analyst Roddy Davidson retained his ‘hold’ recommendation on the stock but does not have a target price. The shares surged 17.4% to 772p yesterday.
‘Pearson has published an interim management statement ahead of its results for the year to end December 2015. Significantly, this announcement also includes a “rigorous, bottom-up review” of the group’s markets, operations and financial plans and details of resultant action to simplify its structure, drive cost reductions and position it for growth,’ he said.
‘The action undertaken is expected to be mostly completed by the middle of this year and is expected to result in exceptional costs of c.£350 million.
‘Encouragingly, particularly in light of mounting speculation that it would be cut, final dividend is being maintained making a full year payment of 52p.’
Davidson added the market would be ‘relieved by its decision to maintain dividends at 2015 year levels’.
Royal Mail under pressure
Letter and parcel delivery revenues remain under pressure at Royal Mail (RMG) and labour negotiations are adding to the woes.
Jefferies analyst David Kerstens retained his ‘underperform’ recommendation and target price of 400p. The shares rose 3.4% to 435.9p yesterday.
‘UK Parcels, International and Letters revenues remain under pressure in the first nine months, with Christmas trading failing to compensate, while the performance of General Logistics Systems continues to improve, expected to drive low-single digit consensus earnings per share upgrades,’ he said.
‘We are relatively cautious ahead of upcoming labour negotiations, which will likely also involve pension reform discussions, while the shares continue to trade at a premium to the European postal sector.’
He added that other risk factors include ‘potentially worsening e-substitution with relatively high letter volumes per household, an increasingly competitive parcel market, regulatory uncertainty pending the outcome of a wide-ranging Ofcom review, potentially limiting commercial freedom, a final conclusion of the review under the Competition Act, and pressure on Nine Elms property valuations’.
Halfords’ long-term performance questioned
Third quarter results from Halfords (HFD) have raised questions about the long-term performance of the car parts and bikes retailer.
Liberum analyst Adam Tomlinson retained his ‘sell’ recommendation and target price of 300p on the shares, which jumped 10.7% to 365.4p yesterday.
‘Q3 update shows weaker than expected like-for-like sales growth, which has been offset by cost savings to leave full-year profit guidance intact. We do not expect material changes to consensus,’ he said.
‘For longer-term profit growth, a strong top line performance is required. We continue to require greater visibility on when the investment, announced at the H1 strategy update, will begin to deliver a better sales performance and over the shorter-term we see some downside risks to margins.’
Ignore Premier Food’s target miss
Premier Foods (PFD), whose products include Bisto gravy and Cadbury cakes, is on track to meet its longer-term targets despite a miss in the third quarter.
Investec analyst Nicola Mallard retained her ‘buy’ recommendation and target price of 52p on the shares, which fell 6.7% to 36.6p yesterday.
The group delivered quarterly revenues of £2.5 million lower than anticipated in third quarter but ‘against a full-year revenue number of just sub £780 million, this is relatively insignificant and has negligible impact on profit numbers’, said Mallard.
‘A small miss on branded performance in Q3, but this was due to specific reasons – including mild winter weather and promotional activity – and so should not be seen as any indication that the strategy is not delivering,’ she said.
‘Management remains confident and has reiterated guidance for full year 2017, of branded revenue growth of 1% to 2%.’
‘Unique’ St James’s Place wins upgrade
Financial advice group St James’s Place (SJP) has been upgraded on the back of strong fourth quarter results.
Peel Hunt analyst Stuart Duncan upgraded his recommendation from ‘hold’ to ‘add’ with a target price of £10.00. The shares rose 1.7% to 894.4p yesterday.
‘SJP has delivered good growth in Q4 2015, with key metrics ahead of expectations. Growth in adviser numbers [of] 10%... bodes well for future growth,’ he said.
‘Although market conditions are challenging, we upgrade our recommendation to “add” given the undemanding valuation.’
He added ‘SJP is now trading on…19x forecast cash earnings’ and ‘the yield is 3.2% to December 2015, rising to 3.8%, reflecting an expectation of continuing strong growth as cash generation continues to increase’.
‘We believe that SJP has a uniquely strong position in the UK advice market, which is now being extended to select overseas locations, and that this drives an increase in our recommendation,’ said Duncan.
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Look up the shares
- Pearson PLC (PSON.L)
- Royal Mail PLC (RMG.L)
- Halfords Group PLC (HFD.L)
- St. James's Place PLC (SJP.L)
- Premier Foods PLC (PFD.L)