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The Expert View: Provident Financial, Sky and Persimmon

Our daily roundup of analyst commentary on shares, also including Jupiter and Asos.

by Michelle McGagh on Feb 28, 2018 at 05:01

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£1,484m
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£350m
Earnings per share179.95p
Cashflow per share197.54p
Cash per share151.38p

Provident Financial soars on redress relief and divi pledge

Shore Capital believes there are still ‘healthy prospects’ for beleaguered doorstep lender Provident Financial (PFG), which has announced it will reinstate its dividend payments this year.

Analyst Gary Greenwood retained his ‘hold’ recommendation on the stock after full-year results that were ‘slightly better than expected’ although he said they were ‘a sideshow relative to the announcement of a settlement with the Financial Conduct Authority (FCA)’ in regards to its investigation into the group’s repayment option plan (ROP).

It has put aside £172 million to cover the settlement and another £20 million over the separate investigation of its Moneybarn car and van financing division, and announced a £331 million rights issue.

Both the settlement and rights issue were smaller than had been feared, sending the shares soaring 70% to £10 yesterday.

‘The outlook statement sees the group moderate its growth and return ambitions but announce that dividend payments will be restored in 2018,’ said Greenwood. ‘Overall, the group is targeting receivables growth of 5-10% per annum, a return on assets of 10%, and dividend cover of at least 1.4x.

‘We will need to work through the impact of these changes to our model, but reflect that these still imply healthy prospects for the group.’

Key stats
Market capitalisation£22,833m
No. of shares out1,719m
No. of shares floating985m
No. of common shareholdersnot stated
No. of employees28123
Trading volume (10 day avg.)5m
Profit before tax£2,136m
Earnings per share39.97p
Cashflow per share95.63p
Cash per share145.43p

More drama to come in the Sky saga, says Hargreaves

The market is expecting more drama in the battle for Sky (SKYB) after Comcast gazumped 21st Century Fox’s offer, says Hargreaves Lansdown.

Comcast has launched a rival bid for Sky offering £12.50 in cash per share compared with £10.75 offered by Rupert Murdoch’s Fox. The shares jumped 19.6% to £13.22 yesterday, as investors anticipated a bid battle for the broadcaster.

Analyst Laith Khalaf said the latest auction of rights to broadcast football’s Premier League had ‘moved the dial for Sky’, which secured more games at a lower cost.

‘The fact that Sky shares were already trading at 30p above Fox’s offer price tells us the market was expecting an improved offer from somewhere,’ he said.

‘This isn’t a done deal yet though. Sky shares are now trading 2% above the Comcast offer price, so the market clearly smells the scent of some more action before this saga draws to a close.’

Key stats
Market capitalisation£8,045m
No. of shares out309m
No. of shares floating297m
No. of common shareholdersnot stated
No. of employees4526
Trading volume (10 day avg.)1m
Profit before tax£782m
Earnings per share196.95p
Cashflow per share199.47p
Cash per share295.95p

Liberum: Persimmon is our preferred ‘returner’

House builder Persimmon (PSN) has boosted its dividend, establishing its place as Liberum’s favoured ‘returner’ despite a ‘full’ valuation.

Analyst Charlie Campbell retained his ‘hold’ recommendation and target price of £27.40 on the stock after the group reported profit before tax growth of 26%.

The house builder also announced total dividends of 235p per share, representing a yield of 9% on yesterday’s share price, up 4.8% at £26.09.

‘We prefer the growers to the returners. They are cheaper and have better earnings per share prospects as selling price inflation shows,’ said Campbell. ‘Persimmon is still our preferred “returner” as we are confident that it can at least make the payments pledged.’

He added that its ‘long land bank means it could cut land spending to boost cashflows, and the strategic land bank may keep supporting margins too’.

‘Our rating remains “hold” as the valuation looks full and the impressive margin expansion record may be coming to an end,’ he said.

Key stats
Market capitalisation£2,421m
No. of shares out458m
No. of shares floating408m
No. of common shareholdersnot stated
No. of employees463
Trading volume (10 day avg.)2m
Profit before tax£171m
Earnings per share29.64p
Cashflow per share30.84p
Cash per share72.23p

Jupiter faces some headwinds this year, says Peel Hunt

Jupiter Fund Management (JUP) has increased its dividend and delivers consistently high returns but Peel Hunt has warned of the risk of ‘substantive’ outflows.

Analyst Stuart Duncan retained his ‘hold’ recommendation and target price of 600p on the shares, which fell 3.9% to 506.4p yesterday.

He said the final results from the company were ‘broadly consistent’, with good growth and a strong balance sheet combining to support a 20% dividend increase.

Duncan noted an increase in assets under management that ‘should translate into a good start for 2018’ but noted changes to pricing would create a profit headwind of £18 million.

‘Jupiter’s current valuation is broadly in line with the rest of the sector… there remain a number of attractions: consistency of delivery, generation of high returns, and a dividend yield of c.6%,’ he said.

‘However, the risk of more substantive outflows from the fund-of-funds strategy is worth noting, with the related point being the relatively high margins on these assets.’

Key stats
Market capitalisation£6,266m
No. of shares out84m
No. of shares floating53m
No. of common shareholdersnot stated
No. of employees3463
Trading volume (10 day avg.)m
Profit before tax£122m
Earnings per share76.58p
Cashflow per share127.11p
Cash per share192.14p

Jefferies upgrades Asos on ‘winning’ tech

Jefferies has upgraded online fashion retailer Asos (ASOS) on the back of its ‘long-term winning model’.

Analyst Niraj Amin upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from £50.00 to £90.00. The shares were up 1/5% at £74.92 yesterday.

‘In a world of rising consumer expectations, we view Asos’ functionality-rich digital platform as a long-term winning model,’ he said.

‘We forecast technology-led growth driving a three-year sales compound annual growth rate of 26% and a core value per share of £80.’

He said sales momentum would be driven by ‘improving international conversion rates as service levels improve and the platform grows’. Although investment remains elevated ‘this is the correct strategy to build a stronger, higher margin business for the future’, said Amin.

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Look up the shares

  • Provident Financial PLC (PFG.L)
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  • Sky PLC (SKYB.L)
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  • Persimmon PLC (PSN.L)
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  • Jupiter Fund Management PLC (JUP.L)
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