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The Expert View: Provident Financial, BHP and Rightmove

Our daily roundup of analyst commentary on shares, also including Secure Trust Bank.

by Michelle McGagh on Aug 23, 2017 at 05:00

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Key stats
Market capitalisation£802m
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

Numis: FCA investigation poses big risk to Provident Financial

Shares in Provident Financial (PFG) crashed yesterday, tumbling 67.5% to 571.2p as the doorstep lender revealed it was subject to a Financial Conduct Authority (FCA) investigation, scrapped its dividend and announced the departure of boss Peter Crook.

Continuing problems in its home credit division could meanwhile lead to losses of up to £120 million, as the company delivered its second profit warning in two months.

Analyst James Hamilton said the FCA investigation into the group’s repayment option plan product, a version of payment protection insurance, posed a big risk.

'Should they have to repay all the premiums as the banks have done it could question the viability of the group,' he said.

Hamilton scrapped his ‘hold’ rating and £18.32 target price, placing both ‘under review’.

Key stats
Market capitalisation£74,700m
No. of shares out5,322m
No. of shares floating2,105m
No. of common shareholdersnot stated
No. of employees26827
Trading volume (10 day avg.)9m
Turnover24,017m USD
Profit before tax-4,961m USD
Earnings per share-0.93 USD
Cashflow per share0.36 USD
Cash per share1.52 USD

Hargreaves hails BHP Billiton’s profits and dividends jump

Markets reacted positively to a big jump in profits and dividends at BHP Billiton (BLT) and Hargreaves Lansdown is impressed by the miner’s continued willingness to return cash to shareholders.

The shares jumped 2.5% to £14.00 yesterday on news of a 454% jump in full-year profits from last year’s lows, with the dividend up 177% at 83 cents (65p).

Analyst Nicholas Hyett said the headlines would centre around BHP’s decision to exit onshore oil and gas in the US following pressure from activist investor Elliott International. The move is likely to be seen as a capitulation by the board, which had argued the US shale business was a core operation, but despite this Hyett said the results showed management’s strategy was ‘going smoothly’.

‘The focus on cost control at BHP’s already very low-cost assets, means cash generation is soaring now commodity prices have turned. Net debt is tumbling, and as that falls towards more sustainable levels it will free up cash for other uses,’ he said.

‘Next year a significant portion of the spare cash is going on increased capital spending, particularly in petroleum and expanding existing mines. But since the group has already proven itself willing to return more than the 50% of earnings its dividend policy dictates, returns to shareholders could benefit as well.’

Key stats
Market capitalisation£3,735m
No. of shares out92m
No. of shares floating91m
No. of common shareholdersnot stated
No. of employees469
Trading volume (10 day avg.)m
Profit before tax£130m
Earnings per share136.41p
Cashflow per share138.11p
Cash per share19.07p

Berenberg has mixed feelings about Rightmove

Property search engine Rightmove (RMV) has ‘stellar pricing power’ but Berenberg is still concerned about sustainability in the medium term.

Analyst Robert Berg retained his ‘hold’ recommendation and target price of £41.50 on the shares, which edged 5p higher to £40.66 yesterday.

He said the first-half results showed ‘that Rightmove has stellar pricing power and we do not question the company’s ability to continue to raise prices in the coming years’.

‘We do, however, question the medium-term sustainability of a business model that appears so reliant on taking advantage of a dominant market position, while adding little in terms of new services for large portions of customers each year,’ he said.

He noted price increases where 50% of Rightmove agent partners accepted a c.10% increase without taking any of the new products offered.

Berg added that the model was ‘more resilient to near-term housing market pressure than many believe’ despite the share price fluctuating with macroeconomic headlines.

Key stats
Market capitalisation£321m
No. of shares out18m
No. of shares floating13m
No. of common shareholdersnot stated
No. of employees697
Trading volume (10 day avg.)m
Profit before tax£19m
Earnings per share101.83p
Cashflow per share113.81p
Cash per share704.73p

Peel Hunt puts Secure Trust Bank ‘under review’

A 10% fall in year-on-year profits at Secure Trust Bank (STBS) has pushed Peel Hunt to put the challenger bank ‘under review’.

Analyst Anthony Da Costa put his ‘buy’ recommendation and target price of £26.00 ‘under review’ after interim results that showed half year profits were down 10% on last year ‘reflecting the repositioning of the bank towards lower risk margin business while higher impairments from the high yielding back-book moderate results’.

‘Loan book growth into lower risk margin business has exceeded our expectations, and we will reassess our model to adjust for the repositioning that in the short term will lead to a reduction in forecasts before a pick-up in returns is visible from 2018,’ he said.

He added that the bank remained well capitalised and that the loan book growth had been higher than expected ‘and can continue to accelerate’.

The shares fell 6.4% to £17.07 yesterday.

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  • Provident Financial PLC (PFG.L)
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  • BHP Billiton PLC (BLT.L)
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  • Secure Trust Bank PLC (STBS.L)
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  • Rightmove PLC (RMV.L)
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