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The Expert View: RBS, Pearson and William Hill

Our daily roundup of analyst commentary on shares, also including Countrywide and Intu Properties.

by Sam Antrobus on Feb 29, 2016 at 05:00

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Key stats
Market capitalisation£26,186m
No. of shares out11,574m
No. of shares floating3,185m
No. of common shareholdersnot stated
No. of employees92400
Trading volume (10 day avg.)16m
Profit before tax£-25m
Earnings per share-0.22p
Cashflow per share10.07p
Cash per share653.00p

*Correct as at 26 Feb 2016

Still value in RBS despite disappointing results

Despite revealing an annual loss for the eighth consecutive year and postponing dividend payments, Shore Capital believes the subsequent market disappointment surrounding RBS (RBS) could present investors with an opportunity.

Analyst Gary Greenwood retained his ‘buy’ recommendation, with a target price of 244p on the shares, which tumbled 7.2% to 224p on Friday.

‘RBS has reported another messy set of final results for 2015, although the actual bottom line numbers, both on an adjusted and reported basis, appear to be broadly in line with company-collated consensus expectations (albeit statutory profit was weaker than we expected),’ he said.

‘That aside, management notes that year-to-date, trading in the core personal and commercial banking franchises is in line with expectations, but the corporate and investment bank has had a difficult start due to the challenging market conditions.

‘Overall, we expect the market to be disappointed by the delay on capital returns, which is the key driver of the investment case for RBS. That said, the delay may ultimately prove to be modest and subsequent capital returns could be significant, in our view.’

Key stats
Market capitalisation£760m
No. of shares out218m
No. of shares floating214m
No. of common shareholdersnot stated
No. of employees10329
Trading volume (10 day avg.)m
Profit before tax£41m
Earnings per share18.82p
Cashflow per share33.28p
Cash per share11.15p

*Correct as at 26 Feb 2016

Strong early indicators for Countrywide

Positive signs for the year ahead suggest Countrywide (CWD), the UK’s largest estate agent, may have plenty of momentum moving forward through 2016.

Jefferies analyst Anthony Codling offers a ‘buy’ recommendation, with a target price of 600p on the shares, which rose 5.3% to 337.7p on Friday.

‘The group gave early indications of results to date – landlord retention up 15%; mortgage renewal rates up from 13% to more than 20%; productivity per mortgage consultant up 8%; London sales pipeline up 22% year on year (albeit compared to a weak 2015 first quarter),’ he said.

‘The group also disclosed earnings bridges for each division, clearly showing organic growth, mergers and acquisitions, productivity and market movements.

‘In our view the next six months will be critical. It will be clear when the group presents its half-year results this summer if the strategy is bearing fruit and if it does, the shares in our view will re-rate.’

Key stats
Market capitalisation£3,852m
No. of shares out1,345m
No. of shares floating883m
No. of common shareholdersnot stated
No. of employees2177
Trading volume (10 day avg.)2m
Profit before tax£583m
Earnings per share46.26p
Cashflow per share38.25p
Cash per share16.14p

*Correct as at 26 Feb 2016

Peel Hunt: Intu’s portfolio already highly valued

Peel Hunt analyst Kate Renn is downbeat about the prospects for Intu Properties (INTUP), believing that the real estate investment trust offers little capacity for further growth.

She rates the company a ‘hold’ with a 277p target price on the shares, which rose 1.7% to 286.4p on Friday.

‘We do not see the scope for yield compression or sufficient estimated retail value growth from here to drive the net asset value forward, as we believe Intu’s portfolio is already highly valued as it prices in almost 9% rental growth already,’ she said.

‘However, portfolio improvements and capital expenditure (eg, the Watford extension) should support a small net asset value gain at least.’

Key stats
Market capitalisation£6,922m
No. of shares out822m
No. of shares floating812m
No. of common shareholdersnot stated
No. of employees40876
Trading volume (10 day avg.)3m
Profit before tax£243m
Earnings per share29.93p
Cashflow per share79.20p
Cash per share67.18p

*Correct as at 26 Feb 2016

No surprise as Pearson disappoints markets

There were no surprises to be found from Pearson’s (PSON) end of year results, with the educational publisher doing little to suggest imminent change lies around the corner.

Numis analyst Gareth Davies retains a ‘reduce’ recommendation, with a target price of 640p on the shares, which rose 5.4% to 844.5p on Friday.

‘Pearson’s results release should hold no material surprises to what was already flagged in the detailed trading update on 21 January,’ he said.

‘An underlying revenue decline of -2% was as expected and adjusted operating profit came in as guided at £723 million with a strong contribution from Penguin Random House offsetting slightly weaker divisionals profits than we had modelled.

‘No obvious changes to the restructuring comments and guidance provided in the January statement. We do not expect to change headline estimates.’

Key stats
Market capitalisation£3,520m
No. of shares out885m
No. of shares floating882m
No. of common shareholdersnot stated
No. of employees16078
Trading volume (10 day avg.)3m
Profit before tax£206m
Earnings per share23.41p
Cashflow per share36.94p
Cash per share25.33p

*Correct as at 26 Feb 2016

Better value exists away from William Hill

Liberum believe that while the outlook for bookmaker William Hill (WMH) is generally positive, better value in the sector may exist elsewhere.

Liberum analyst Jason Holden maintains a ‘hold’ recommendation with a target price of 367p on the shares, which fell 1% to 397.9p on Friday.

‘William Hill is currently trading around at a small premium to our target price and a mid to high teens price-earnings ratio doesn’t leave any obvious room for a substantial rerating, especially given a similar – albeit not as great as Ladbrokes – risk to earnings should there be further rises in UK duty,’ he said.

‘However, in the short term sentiment will be aided by the share buy-back and an increase in the pay-out ratio.

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Look up the shares

  • Royal Bank of Scotland Group PLC (RBS.L)
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  • Countrywide PLC (CWD.L)
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  • Pearson PLC (PSON.L)
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  • William Hill PLC (WMH.L)
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  • Intu Properties PLC (INTUP.L)
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