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The Expert View: RBS, Aberdeen and Barratt

Our daily roundup of analyst commentary on shares, also including Ocado and Stock Spirits.

by Michelle McGagh on Jan 28, 2016 at 05:00

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Key stats
Market capitalisation£29,548m
No. of shares out11,574m
No. of shares floating3,185m
No. of common shareholdersnot stated
No. of employees92400
Trading volume (10 day avg.)15m
Turnover£13,079m
Profit before tax£-25m
Earnings per share-0.22p
Cashflow per share10.07p
Cash per share653.00p

*Correct as at 27 Jan 2016

RBS pension changes an ‘unfriendly’ surprise

Royal Bank of Scotland (RBS) has issued a profit warning as it wrote off £2.5 billion, but Jefferies analyst Joseph Dickerson is more worried about further pension costs.

RBS yesterday wrote off £2.5 billion to cover US litigation costs, provide more cash for loan insurance mis-selling and account for a reduction in the value of its private bank Coutts.

The bank will also make a £4.2 billion payment into its pension scheme in response to changes in its accounting policy, a move which caught Dickerson’s eye.

‘While further US residential mortgage-backed securities and payment protection insurance charges have been largely expected by the market, the pension change was something new and unfriendly near-term,’ he said.

Dickerson maintained his ‘buy’ rating and 482p target price on the shares, which fell 2% to 255.7p yesterday.

Key stats
Market capitalisation£3,143m
No. of shares out1,318m
No. of shares floating919m
No. of common shareholdersnot stated
No. of employees2731
Trading volume (10 day avg.)6m
Turnover£1,169m
Profit before tax£288m
Earnings per share21.79p
Cashflow per share33.95p
Cash per share186.45p

*Correct as at 27 Jan 2016

Aberdeen reports another quarter of outflows

Fund manager Aberdeen Asset Management (ADN) has reported its eleventh consecutive quarter of fund outflows, leading analysts to reconsider full-year forecasts.

Shore Capital analyst Paul McGinnis retained his 'sell' recommendation but does not have a target price on the shares, which rose 3.1% to 240p yesterday.

'This is now the eleventh consecutive quarter of net outflows and the figure for the quarter of £9.1 billion makes our full year net outflow forecasts of £14.4 billion already look much too optimistic,' he said.

'We have previously expressed concern that Aberdeen's gross sales have actually been holding up relatively well at c.£10 billion per quarter despite mixed investment performance and that a dip here could exacerbate the negative net flow.

'Our initial inclination is to stick with the “sell” stance but remain mindful of the fact that if Aberdeen can somehow arrest the gross outflows, then there should be more limited downside below 200p.'

Key stats
Market capitalisation£5,901m
No. of shares out1,002m
No. of shares floating969m
No. of common shareholdersnot stated
No. of employees5971
Trading volume (10 day avg.)3m
Turnover£3,760m
Profit before tax£449m
Earnings per share44.57p
Cashflow per share44.98p
Cash per share37.23p

*Correct as at 27 Jan 2016

Barratt: analyst caution not playing out yet but it will

Liberum analyst Charlie Campbell is standing by his Barrett Development (BDEV) rating despite a visit from the housebuilder's management team to try and convince him otherwise.

Campbell retained his 'sell' recommendation and target price of 539p on the shares, which rose 2.2% to 593p yesterday.

'Barratt's management came in to present to the Liberum sales team...the strength of the business environment described by management is in contract to our cautious view,' he said.

'Selling prices are showing little sign of decelerating, outside a soft centre in London, as the [Bank of England] is now slowing mortgage lending further, and build cost inflation appears to be fading rather than accumulating.

'We do not want to throw in the towel on our “sell” case though as we can still see the likelihood of margin pressure on the horizon. Relatively high valuations are still a threat but we admit that these may not unwind until margin pressure becomes more imminent.'

Key stats
Market capitalisation£1,601m
No. of shares out590m
No. of shares floating342m
No. of common shareholdersnot stated
No. of employees7005
Trading volume (10 day avg.)4m
Turnover£949m
Profit before tax£7m
Earnings per share1.19p
Cashflow per share10.14p
Cash per share13.02p

*Correct as at 27 Jan 2016

Ocado: analysts await details of international deal

Online food retailer Ocado (OCDO) will report its preliminary results next week, and analysts are looking out for an update on an international tie-up.

Barclays analyst James Anstead reiterated his 'equal weight' recommendation and target price of 420p on the stock ahead of next Tuesday’s announcement. The shares rose 4% to 272.8p yesterday.

'The numbers to be released as part of Ocado's preliminary results will of course be of interest, but there will likely be greater focus on the longer-term strategic dimension,' he said.

'In particular, the company stated in early 2015 that is was [targeting an international tie-up]. It indicated at the H1 2015 stage that it was in “advanced discussions with multiple potential international partners”,’ he added.

‘However the ultimate absence of any announcement in 2015 indicates that the company failed to hit its self-imposed target.

‘For that reason we expect a great deal of questioning on the progress of negotiations and the wisdom of having set a soft deadline - questions that may be difficult to answer for reasons of commercial confidentiality.’

Key stats
Market capitalisation£267m
No. of shares out200m
No. of shares floating173m
No. of common shareholdersnot stated
No. of employees923
Trading volume (10 day avg.)m
Turnover223m EUR
Profit before tax27m EUR
Earnings per share0.13 EUR
Cashflow per share0.18 EUR
Cash per share0.32 EUR

*Correct as at 27 Jan 2016

Stock Spirits leaves profit warnings behind

Beverage company Stock Spirits (STCK) has shrugged off profit warnings and reported earnings are on course to be better than expected.

Berenberg analyst Javier Gonzalez retained his 'hold' recommendation but increased the target price from 131p to 137p. The shares rose 2.5% to 133.3p yesterday.

'Stock Spirits confirmed that full year 2015 earnings would fall within the upper half of the €50 million-€54 million range - in line with consensus but ahead of our more pessimistic forecast of €48.3 million,' he said.

'Management also indicated that net debt would come in at €57 million for full year 2015. Following several profit warnings in the past 18 months, this should come as a relief.'

Despite the good news, the company still needs to look out for 'retail tax clouds overhead', specifically in the Polish market where new legislation will introduce a tax on retailers from 1 April.

'It remains unclear at this stage how the new retail tax of 2% on large retailers will affect suppliers like Stock, but this is unlikely to be good news,' he said.

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Look up the shares

  • Royal Bank of Scotland Group PLC (RBS.L)
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  • Barratt Developments PLC (BDEV.L)
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  • Stock Spirits Group PLC (STCK.L)
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  • Ocado Group PLC (OCDO.L)
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  • Aberdeen Asset Management PLC (ADN.L)
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