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The Expert View: Prudential, Shell and Kier

Our daily roundup of analyst commentary on shares, also including OneSavings Bank and Safestyle.

by Michelle McGagh on Mar 18, 2016 at 05:00

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Key stats
Market capitalisation£34,563m
No. of shares out2,573m
No. of shares floating2,562m
No. of common shareholdersnot stated
No. of employees23047
Trading volume (10 day avg.)5m
Profit before tax£2,579m
Earnings per share100.90p
Cashflow per share-9,999,999.00p
Cash per share302.51p

*Correct as at 17 Mar 2016

Pru set for double-digit growth: ‘buy’

Insurer Prudential (PRU) is Barclays’ top pick for large cap growth stocks in European insurance.

Barclays analyst Alan Devlin reiterated his ‘overweight’ recommendation and increased the target price from £17.54 to £17.79. The shares edged 2p lower to £13.37 yesterday.

‘We view Prudential as the one true large cap growth stock in European insurance, and the compound growth of its earnings is the tangible evidence,’ he said.

‘Prudential has underperformed the FTSE year-to-date on concerns in its US business on the potential Department of Labor reforms, coupled with question marks on the sustainability of Hong Kong sales and on wider corporate credit concerns.

Devlin said he has already discussed the idea that ‘these issues are not only manageable but indeed exaggerated with a relatively minor impact to earnings’ and that Prudential has ‘quality of earnings, capital and dividend growth’ as plus points.

‘We conclude that Prudential remains a strong high quality business and the double-digit growth story is intact,’ he said.

Key stats
Market capitalisation£108,831m
No. of shares out6,312m
No. of shares floating6,301m
No. of common shareholdersnot stated
No. of employees97000
Trading volume (10 day avg.)4m
Turnover237,577m USD
Profit before tax12,992m USD
Earnings per share2.12 USD
Cashflow per share3.79 USD
Cash per share1.41 USD

*Correct as at 17 Mar 2016

Shell and Saudi Aramco go their separate ways

Royal Dutch Shell (RDSa) and Saudi Aramco have announced an amicable divorce over their joint venture Motiva.

Jefferies analyst Jason Gammel retained his ‘buy’ recommendation and target price of £20.40 on the shares, which rose 1.6% to £17.30 yesterday.

‘Shell and Saudi Aramco have announced plans to separate assets held in their 50/50 Motiva joint venture in the US,’ he said.

‘The transaction increases Shell leverage to US gasoline and enhanced flexibility on downstream divestitures.’

Gammel said following Shell’s takeover of BG ‘we expect the combined entity to have one of the most resilient cash cycles in the sector with a break-even Brent price sub-$60 post-2017’.

Key stats
Market capitalisation£735m
No. of shares out243m
No. of shares floating233m
No. of common shareholdersnot stated
No. of employees419
Trading volume (10 day avg.)1m
Profit before tax£52m
Earnings per share22.15p
Cashflow per share22.53p
Cash per share0.12p

*Correct as at 17 Mar 2016

OneSavings Bank: buy-to-let fears overdone

Shares in OneSavings Bank (OSBO) are recovering from an over-reaction to fears about the buy-to-let market.

Shore Capital analyst Gary Greenwood reiterated his ‘buy’ recommendation but does not have a target price on the stock following final 2015 results. The shares surged 18.6% to 301.5p yesterday.

He said the results were ‘broadly in line with our own and consensus expectations’.

‘The only thing we would pick out is a slight increase in the core tier 1 ratio, which was better than expected,’ he said.

‘In terms of buy-to-let, the group has tightened some of its rental cover criteria for amateur landlords and first-time borrowers ahead of potential regulatory change. However, the majority of applications continue to come from professional landlords who retain a strong appetite to borrow despite potential changes to taxation.

‘As stamp duty is offset-able against capital gains, we do not expect the Budget announcement to include professional landlords to materially impact on demand. Management notes that its pipeline remains strong.’

Greenwood added that ‘the shares are more than discounting fears around a potential slowdown in the buy-to-let market and collapse in returns and so we reiterate our positive stance’.

Key stats
Market capitalisation£1,246m
No. of shares out96m
No. of shares floating90m
No. of common shareholdersnot stated
No. of employees17931
Trading volume (10 day avg.)m
Profit before tax£28m
Earnings per share40.00p
Cashflow per share101.41p
Cash per share266.92p

*Correct as at 17 Mar 2016

Prospects for Kier not reflected in share price

Construction and property group Kier (KIE) has been upgraded thanks to a positive outlook for the second half of its financial year.

Numis analyst Howard Seymour upgraded his recommendation from ‘add’ to ‘buy’ with a target price of £16.25. The shares dipped 1p to £12.99 yesterday.

‘Kier has demonstrated a strong performance across the group with good organic growth in construction and residential operations, while (the acquisitions of) Mouchel has clearly been the driver of services growth,’ he said.

‘We believe this sets the scene for an excellent outlook for H2 and beyond. Market improvement coupled with management actions… means that Kier has the platform to provide best-in-class growth relative to the wider sector.’

Seymour added: ‘We continue to believe that this is not reflected in the share price – noting in particular the 20% yield premium to the sector even though Kier is one of the few increasing its dividend per share.’

Key stats
Market capitalisation£215m
No. of shares out78m
No. of shares floating74m
No. of common shareholdersnot stated
No. of employees661
Trading volume (10 day avg.)m
Profit before tax£13m
Earnings per share15.92p
Cashflow per share17.21p
Cash per share10.87p

*Correct as at 17 Mar 2016

Safestyle reports special divi

Double glazing company Safestyle (SFES) has reported further share gains and a special dividend.

Liberum analyst Charlie Campbell retained his ‘buy’ recommendation and increased the target price from 280p to 310p. The shares rose 3.3% to 277.3p.

‘Safestyle’s 2015 results were strong, as expected, with sales of c.10% driven by another year of market share gains,’ he said.

‘Growth improves in the second half due to the success of the finance offer, with momentum continuing into 2016. A surprise special dividend of 6.8p should increase investor focus on high and rising free cashflow. Our revised target price of 310p is based on 7% free cashflow yield. We leave estimates unchanged, conservatively.’

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  • Prudential PLC (PRU.L)
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  • Royal Dutch Shell PLC (RDSa.L)
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  • Kier Group PLC (KIE.L)
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  • Safestyle UK PLC (SFES.L)
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  • OneSavings Bank PLC (OSBO.L)
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