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The Expert View: RBS, EasyJet and Burford Capital

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

by Michelle McGagh on Jun 06, 2018 at 05:00

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Key stats
Market capitalisation£31,931m
No. of shares out11,993m
No. of shares floating3,582m
No. of common shareholdersnot stated
No. of employees70900
Trading volume (10 day avg.)22m
Turnover£11,034m
Profit before tax£7,082m
Earnings per share6.30p
Cashflow per share16.66p
Cash per share957.75p

RBS to take a near term hit, says Hargreaves

The government’s sale of part of its stake in Royal Bank of Scotland (RBS) is good news for investors but may put downward pressure on the shares in the near term, says Hargreaves Lansdown.

UKGI, through which the government owns stakes in the UK’s banks, has sold 7.7% of RBS shares to reduce its stake to 62.4%. The government is selling to institutional investors at well below the £5.02 per share it paid for the bank stake as part of the £45.5 billion bailout during the financial crisis.

The shares fell 4.1% to 269.4p yesterday.

Analyst Laith Khalaf said the taxpayer was ‘significantly out of pocket’.

‘[The] share sale is good news for private investors in RBS because it is a step towards becoming a normal bank again, though government sales may put downward pressure on the share price in the near term,’ he said.

‘As a business, RBS remains a work in progress, and consequently an investment for recovery investors with a long-term investment horizon.’

Key stats
Market capitalisation£6,901m
No. of shares out397m
No. of shares floating260m
No. of common shareholdersnot stated
No. of employees11655
Trading volume (10 day avg.)2m
Turnover£5,047m
Profit before tax£603m
Earnings per share76.83p
Cashflow per share125.95p
Cash per share334.33p

Liberum upgrades EasyJet despite cost concerns

Liberum has upgraded EasyJet (EZJ) despite concerns about costs as the market remains supportive for the budget airline.

Analyst Gerald Khoo upgraded his recommendation from ‘sell’ to ‘hold’ and increased the target price from £12.50 to £18.00. The shares fell 2.5% to £17.34 yesterday.

‘Our two main concerns with EasyJet remain non-fuel unit costs and free cashflow,’ he said. ‘Despite our medium term caution, it is clear that EasyJet is facing a supportive trading environment at present. Reductions in competitor capacity on EasyJet routes are especially helpful.’

He said positive earnings momentum would support the shares for the ‘foreseeable future’ and the ‘balance of risks to earnings estimates [is] on the upside’.

Key stats
Market capitalisation£3,355m
No. of shares out208m
No. of shares floating189m
No. of common shareholdersnot stated
No. of employees0
Trading volume (10 day avg.)m
Turnover257m USD
Profit before tax215m USD
Earnings per share0.90 USD
Cashflow per share0.94 USD
Cash per share0.64 USD

Numis upgrades Burford Capital

Numis has upgraded litigation finance provider Burford Capital (BURF) which it expects will continue to deliver the high returns investors have come to expect.

Analyst Marcus Barnard upgraded his recommendation from ‘add’ to ‘buy’ with a target price of £19. The shares rose 2.2% to £16.12 yesterday.

‘While returns have been volatile, we recognise some patterns,’ he said. ‘Returns have been helped by a few large investments, but the core of the business is a large number of completed investments… as the business matures, we expect the volatility of returns to reduce.’

Barnard added that litigation finance was a growing market and ‘Burford’s brand, experience, internal processes, and balance sheet create a considerable advantage to attract and win new business’.

‘Success depends on the right investments, understanding and pricing the risk to earn a good return, and collecting the proceeds,’ he said.

‘We believe Burford is ahead of the competition and its size means it can finance cases where there is limited competition.’

Key stats
Market capitalisation£985m
No. of shares out244m
No. of shares floating237m
No. of common shareholdersnot stated
No. of employees813
Trading volume (10 day avg.)1m
Turnover£333m
Profit before tax£173m
Earnings per share51.78p
Cashflow per share53.20p
Cash per share0.21p

Jefferies: OneSavings Bank needs to focus on payouts

OneSavings Bank (OSBO) is undervalued, according to Jefferies, but the challenger bank still needs a credible plan to deliver excess capital to shareholders.

Analyst Kapilan Pillai retained his ‘buy’ recommendation and target price of 512p on the shares, which fell 2% to 402.8p yesterday.

‘OneSavings Bank remains undervalued on a full year 2020 price/earnings of seven times, particularly given ongoing sector consolidation plans,’ he said.

‘Double-digit lending growth and best-in-class efficiency underpin annual capital generation.’

Pillai added that the past two years of payouts had been ‘disappointing’ for shareholders and it ‘now needs to deliver a credible plan for its excess capital’.

Key stats
Market capitalisation£752m
No. of shares out459m
No. of shares floating212m
No. of common shareholdersnot stated
No. of employees2506
Trading volume (10 day avg.)m
Turnover£701m
Profit before tax£-6m
Earnings per share-1.57p
Cashflow per share-0.33p
Cash per share6.98p

AO more than up with events, says Shore Capital

Despite share price falls at AO (AO), Shore Capital believes the electrical retailer’s valuation is up with event.

Analyst Greg Lawless reiterated his ‘sell’ recommendation following full year results that reported revenue growth of 13.6% to £797 million.

‘In terms of valuation, AO trades on a forward one-year enterprise value/earnings multiple of 185 times. The shares have fallen from the 180p level 10 days ago and are currently trading at 153p,’ he said.

‘Given the sustained losses across the group, investors look like they need to be patient for now. Given our concerns about the scale of the losses across the European footprint, where the business remains sub-scale for the foreseeable future, we continue to believe that the current valuation is more than up with events.’

The shares rose 6.2% to 162p yesterday.

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  • AO World PLC (AO.L)
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  • Burford Capital Ltd (BURF.L)
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  • easyJet plc (EZJ.L)
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  • OneSavings Bank PLC (OSBO.L)
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  • Royal Bank of Scotland Group PLC (RBS.L)
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