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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
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.’
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.’
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.’
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.’
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)
- Countrywide PLC (CWD.L)
- Pearson PLC (PSON.L)
- William Hill PLC (WMH.L)
- Intu Properties PLC (INTUP.L)