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The Expert View: Provident, Burberry and Card Factory

Our daily roundup of analyst commentary on shares, also including Thomas Cook and AO World.

by Michelle McGagh on Apr 11, 2018 at 05:00

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Key stats
Market capitalisation£1,670m
No. of shares out253m
No. of shares floating144m
No. of common shareholdersnot stated
No. of employees4466
Trading volume (10 day avg.)1m
Turnover£1,196m
Profit before tax£607m
Earnings per share-66.40p
Cashflow per share-52.32p
Cash per share162.29p

Shore Capital: Provident Financial turning it around

Shore Capital is ‘encouraged’ about the future of doorstep lender Provident Financial (PFG) after a meeting with the board.

Analyst Gary Greenwood retained his ‘hold’ recommendation and ‘fair value’ price of 640p after the company completed a £331 million rights issue.

He said he was ‘comfortable’ with the £172 million set aside for potential redress associated with failures to disclose interest charges on the company’s PPI-style ‘repayment option plans’.

There is also improvement in the Vanquis and Moneybarn lending arms, the latter of which is geared to car finance that is still showing strong demand.

‘The board still needs further strengthening, including the appointment of a new chairman and additional non-executives,’ said Greenwood. ‘This is obviously a high priority for the group and we expect further announcements will be forthcoming in this respect in the near term.’

The shares fell 3.8% to 661p yesterday.

Key stats
Market capitalisation£7,167m
No. of shares out418m
No. of shares floating386m
No. of common shareholdersnot stated
No. of employees9828
Trading volume (10 day avg.)2m
Turnover£2,766m
Profit before tax£637m
Earnings per share64.86p
Cashflow per share99.32p
Cash per share189.48p

Burberry still facing challenges, says Jefferies

There are still a number of challenges on the horizon for Burberry (BRBY) as the fashion designer struggles with online and a new creative director.

Analyst Flavio Cereda retained his ‘hold’ recommendation and increased his price target to £17 from £16.50. The shares rose 1.4% to £17.15 yesterday.

‘We continue to see challenges including the impact of the new creative director, weak digital footprint, confusing elevation process, and still poor sales metrics,’ he said.

Although Cereda said the strategy at the company was ‘fuzzy’ he said the positive included ‘a likely greater focus on 'the process' now all key appointments are in place, and ongoing solid cashflow profile’.

Key stats
Market capitalisation£774m
No. of shares out341m
No. of shares floating304m
No. of common shareholdersnot stated
No. of employees9928
Trading volume (10 day avg.)1m
Turnover£398m
Profit before tax£100m
Earnings per share19.27p
Cashflow per share22.47p
Cash per share0.88p

Don’t be too bullish on Card Factory, says Liberum

There are few positive catalysts in sight for Card Factory (CARDC) and some analysts’ forecasts for the greeting card company could look too bullish, according to Liberum.

Analyst Wayne Brown retained his ‘buy’ recommendation but reduced the target price from 240p to 210p after full-year results were ‘broadly as expected but there contains little by the way of a positive catalyst’.

‘Any underlying earnings growth for the current year is likely to be limited and the expectations for a special dividend are now between 5p-10p versus 15p last year,’ he said.

‘This should not be a surprise but could mean that some analysts’ forecasts may appear too bullish.’

He added that the reduced target price reflected the lack of profit growth and challenging outlook but the recommendation was based on ‘the valuation and the high cash generative nature of the group, which still offers 9-10% dividend yield’.

The shares soared 12.6% to 209.2p yesterday.

Key stats
Market capitalisation£1,896m
No. of shares out1,536m
No. of shares floating1,340m
No. of common shareholdersnot stated
No. of employees21788
Trading volume (10 day avg.)4m
Turnover£9,007m
Profit before tax£588m
Earnings per share0.85p
Cashflow per share15.82p
Cash per share91.61p

Numis: Thomas Cook discount ‘unwarranted’

Holidaymakers are returning to the Eastern Mediterranean and North Africa, which will improve margins Thomas Cook (TCG), narrowing its discount to peers, says Numis.

Analyst Kathryn Leonard retained her ‘buy’ recommendation and target price of 149p on the stock, which jumped 3.6% to 123.4p yesterday.

‘Data…suggests demand is shifting back to the Eastern Mediterranean and Northern Africa, which could eventually create cost deflation and improve Thomas Cook’s margin mix,’ she said.

‘While we conservatively forecast 0.3% compression in Thomas Cook’s tour operator earnings margin in full-year 2018 as foreign exchange and inflation weigh on costs, we believe the continuation of a strong demand backdrop is supportive to Thomas Cook estimates and sector sentiment.’

Leonard added that Thomas Cook traded on a 30% discount to the sector that is ‘unwarranted given the progress the group has made over the last two years’ and she expects ‘its persistent discount to peers to narrow over the next 12 months’.

Key stats
Market capitalisation£610m
No. of shares out459m
No. of shares floating211m
No. of common shareholdersnot stated
No. of employees2506
Trading volume (10 day avg.)1m
Turnover£701m
Profit before tax£-6m
Earnings per share-1.57p
Cashflow per share-0.33p
Cash per share6.98p

AO trading at big discount, says Peel Hunt

Online electrical retailer AO (AO) is still growing faster than the market but trading on a big discount, which means it remains cheap, says Peel Hunt.

Analyst James Lockyer retained his ‘buy’ recommendation and target price of 145p on the stock after an unexpected post-close trading update last week where the company reported revenue slightly ahead of consensus.

‘AO is starting to recover from record-low valuations, but we believe the market still has an eye on the short term and on where AO is rather than where AO will be,’ he said.

‘We see continued market share and gross margin improvements each year in each market, despite tough macro and foreign exchange conditions, as its investment in customer experience, operational efficiency, and supplier relationships continues to secure AO’s future.’

Lockyer added that the company was still trading at ‘a big discount; and ‘given its strategic decision to run the business at an effective breakeven position, enterprise value (EV)/sales is the only real metric we can use’.

‘In our peer group, we see 2019 EV/sales of 1.7x; AO is trading on 0.6x,’ he said.

The shares jumped 1.4% to 126.8p yesterday.

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  • AO World PLC (AO.L)
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  • Burberry Group PLC (BRBY.L)
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  • Card Factory PLC (CARDC.L)
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  • Provident Financial PLC (PFG.L)
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  • Thomas Cook Group plc (TCG.L)
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