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The Expert View: Provident Financial, Whitbread and Just Eat

Our daily roundup of analyst commentary on shares, also including Berkeley and Greencore.

by Michelle McGagh on Jun 22, 2017 at 05:01

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Key stats
Market capitalisation£3,526m
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 downgrades Provident Financial as collections fall

Numis has downgraded Provident Financial (PFG) after a profit warning, with the doorstep lender warning an overhaul of its home credit division was costing more than first thought.

The company said the impact of the reorganisation on collections, sales penetration and customer retention was heavier than expected.

Having previously predicted a £15 million impact on collections in the first half of the year, Provident Financial said the cost was now likely to hit £40 million. Credit issued for the five months to May was meanwhile £37 million below the same period last year.

Analyst James Hamilton downgraded his recommendation from ‘hold’ to ‘reduce’ with a target price of £23.35. The shares were down 16.3% at £23.97 at the time of writing.

‘Provident have guide that home collected credit is now expected to report a profit of £60 million for this year, down from the £115 million reported last year,’ he said.

‘The rest of the group is trading in line with internal plans but we would highlight the recent weak economic statistics such as inflation, average earnings, the services purchasing managers’ index and most importantly retail sales.’

Key stats
Market capitalisation£7,328m
No. of shares out183m
No. of shares floating180m
No. of common shareholdersnot stated
No. of employees42044
Trading volume (10 day avg.)1m
Profit before tax£422m
Earnings per share230.89p
Cashflow per share348.30p
Cash per share34.37p

Long-term growth potential at Whitbread, says Hargreaves Lansdown

Whitbread (WTB) has reassured shareholders with a 7.6% jump in sales in the first quarter, and investors should look to the Premier Inn and Costa Coffee owner’s international business as the engine of future growth, according to Hargreaves Lansdown.

Shares in the business were up 3.3% at the time of writing, as investors reacted with relief to the news, following earlier warning of tougher trading ahead.

Analyst Nicholas Hyett said the results were ‘pretty solid’ although don’t show ‘the spectacular growth of years past, but the UK business is a more mature animal than it was and that is inevitably going to slow growth’.

‘The group continues to set some fairly chunky growth targets for the rest of this year, which could be challenging if the UK economy remains sluggish,’ he said.

‘However, it’s the international business that seems likely to become the long-term growth driver… with a price/earnings of 14.7x versus a longer run average

Key stats
Market capitalisation£4,587m
No. of shares out679m
No. of shares floating571m
No. of common shareholdersnot stated
No. of employees1621
Trading volume (10 day avg.)3m
Profit before tax£72m
Earnings per share10.55p
Cashflow per share14.08p
Cash per share19.25p

Peel Hunt: Just Eat cheaper than you think

Peel hunt believes Just Eat (JE) is cheaper than it first appears despite the market debating the online takeaway delivery service’s high valuation.

Analyst James Lockyer retained his ‘buy’ recommendation and target price of 895p on the stock, which was trading up 1.6%, or 11p, at 673p at the time of writing.

‘Despite support for the business model in the market, there is a lot of debate surrounding its current high valuation,’ he said. ‘We take a contrarian view.’

Lockyer said the debate does not factor in the fact the business was growing ‘materially faster on sales, earnings, and earnings per share compared to its marketplace’.

He said adjusting for the ‘strong search engine optimisation intangible asset and the potential once it flips on its data analytics product’ meant Just Eat could actually be trading on a 16.2 times 2018 enterprise value/earnings ratio rather than the 20.1 times on which it appears to trade.

Key stats
Market capitalisation£4,552m
No. of shares out138m
No. of shares floating125m
No. of common shareholdersnot stated
No. of employees2277
Trading volume (10 day avg.)1m
Profit before tax£404m
Earnings per share268.68p
Cashflow per share270.75p
Cash per share77.68p

Berkeley: higher share price can’t be supported, says Shore Capital

The housing boom seen in London is not repeatable and Berkeley (BKG) will move from a £800 million profit business to a £500 million one, says Shore Capital.

Analyst Robin Hardy retained his ‘hold’ recommendation and a ‘fair value’ target price of £28 on the stock after preliminary results showed a small beat on profits before tax of £812 million. The stock was trading up 1.9%, or 63p, at £32.94 at the time of writing.

Although the company said 2018 profits were likely to be in line with 2017, Hardy said it was ‘important to look to these later years of profitability and not the near-term delivery as those profits arise from an exceptional and unrepeatable period of favourable conditions and high selling price inflation in the prime central London market’.

‘Berkeley going forward is a £500 million profit business, not an £800 million one and this needs to be reflected in the rating in our view,’ he said.

‘The quality of earnings is high and this is a business that has always surprised on the upside but we find it hard to see on the basis of a new and lower earnings platform plus the cautious tone of [the preliminary results] statement that a much higher share price can be supported.’

Key stats
Market capitalisation£1,772m
No. of shares out705m
No. of shares floating695m
No. of common shareholdersnot stated
No. of employees11856
Trading volume (10 day avg.)3m
Profit before tax£47m
Earnings per share9.40p
Cashflow per share18.67p
Cash per share5.07p

Jefferies: Greencore close to bottom on multiple

Convenience food manufacturer Greencore (GNC) is still trading on a ‘close-to-trough’ multiple and there is scope for good news, says Jefferies.

Analyst Martin Deboo retained his ‘buy’ recommendation and target price of 300p after an investor seminar. Shares were trading up 0.2%, or 0.7p, at 251p at the time of writing.

He said he ‘liked what we saw in the US and like what we heard about the UK’.

‘There was useful clarity on the medium-term returns profile, with an increased focus on cash and return on invested capital,’ said Deboo. ‘No basis for consensus upgrades we suspect, but at still close-to-trough multiple, there would appear to be more than sufficient good news here.’

Comments from chief financial officer Eoin Tonge showed ‘Greencore seem to have got the message from the market that it likes the growth, but is less convinced by the cash’, said Deboo.

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Look up the shares

  • Provident Financial PLC (PFG.L)
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  • Whitbread PLC (WTB.L)
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  • Just Eat PLC (JE.L)
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  • Berkeley Group Holdings PLC (BKGH.L)
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  • Greencore Group PLC (GNC.L)
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