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The Expert View: Reckitt Benckiser, Fidessa & Spectris

Our daily roundup of analyst commentary on shares, including Convatec and Gleeson.

by Michelle McGagh on Feb 20, 2018 at 05:01

Key stats
Market capitalisation£43,675m
No. of shares out704m
No. of shares floating658m
No. of common shareholdersnot stated
No. of employees34700
Trading volume (10 day avg.)1m
Turnover£9,891m
Profit before tax£3,025m
Earnings per share256.48p
Cashflow per share288.81p
Cash per share109.27p

AJ Bell warns on over-valued Reckitt Benckiser

A ‘tepid’ outlook at consumer goods giant Reckitt Benckiser (RB) is doing nothing to help support shares’ expensive valuation, says AJ Bell.

Analyst Russ Mould said a return to sales growth in the fourth quarter did nothing to convince investors as the stock tumbled over 6% to £61.52 yesterday. The shares have declined from a peak of near £81 last summer when they traded at 22 times earnings.

‘The problem may not be the numbers themselves, but the tepid sales growth guidance for 2018 and the reliance on cost-cutting for earnings surprises… as neither help to support a valuation that already represents a big premium to the wider UK market,’ he said.

‘Reckitt’s brand strength, lofty margins, and record of consistent profit and dividend growth can justify a premium rating to some degree but using acquisitions to fuel growth raises the risks involved and lowers the quality of earnings,’ said Mould.

He added that the company could also become involved in an auction of the healthcare operations of Pfizer, which has a rumoured $20 billion price tag, just a year after its Mead Johnson deal increased net debt from £1.4 billion to £10.7 billion ‘and the cost of borrowing has finally started to rise’.

Key stats
Market capitalisation£1,074m
No. of shares out39m
No. of shares floating36m
No. of common shareholdersnot stated
No. of employees1727
Trading volume (10 day avg.)m
Turnover£332m
Profit before tax£88m
Earnings per share92.26p
Cashflow per share196.79p
Cash per share246.60p

Jefferies upgrades Fidessa on margin clarity

Jefferies has upgraded Fidessa (FDSA) as it believes the financial markets software provider now has clarity on its ‘margin evolution’.

Analyst Vijay Anand raised his recommendation from ‘hold’ to ‘buy’ and increased his share price target from £24 to £31 after annual results came in ‘modesty ahead’ of expectations.

‘Full-year 2017 results signal the end of the investment phase in building out the derivatives business as well as getting its cash equities platform Mifid II ready,’ he said in reference to new European regulations introduced in January.

‘While Fidessa continues to target expansion into new markets, the limited visibility on such opportunities implies that we now expect earnings before interest and taxation margin to expand significantly, driving 12-13% earnings per share upgrades for 2019-2022. With the emergence of clarity on future margin evolution, we upgrade.’

The shares advanced over 5%, or 140p, to £27.45 on Monday.

Key stats
Market capitalisation£3,251m
No. of shares out119m
No. of shares floating117m
No. of common shareholdersnot stated
No. of employees8900
Trading volume (10 day avg.)m
Turnover£1,346m
Profit before tax£228m
Earnings per share8.61p
Cashflow per share63.29p
Cash per share70.07p

Shore Capital backs margin growth at Spectris

Measuring instruments manufacturer Spectris (SXS) can build profit margins above 15% but the market is looking for ‘momentum’ in its ‘Uplift’ savings programme, says Shore Capital.

Analyst Ben McSkelly retained his ‘buy’ recommendation after full-year results were ‘broadly in line’ with forecasts, with like-for-like revenues up 6% and operating profit before Uplift savings growing to £239 million from £204 million in 2016.

‘Our enthusiasm for Spectris’ shares has been motivated by a belief that the group should, and can, build operating margins into the high teens,’ he said.

‘In the short term, lack of further investment will aid results, but we believe the market is looking for momentum in Uplift.’

McSkelly added: ‘Following the sale of Microscan, the company has announced a £100 million buyback programme. We expect to move our Uplift cost and benefit assumptions, while tweaking underlying growth and await management guidance on currency tailwinds, given the strengthening of sterling.’

The shares rallied 3.5%, or 93p, to £27.40.

Key stats
Market capitalisation£4,148m
No. of shares out1,947m
No. of shares floating1,525m
No. of common shareholdersnot stated
No. of employees8524
Trading volume (10 day avg.)7m
Turnover1,252m USD
Profit before tax303m USD
Earnings per share0.06 USD
Cashflow per share0.12 USD
Cash per share0.11 USD

Buy Convatec for recovery, says Share Centre

Strong full-year results from medical technology company Convatec (CTEC) boosted the shares but they are still a ‘long way’ from their highs and remain a buying opportunity, believes The Share Centre.

Analyst Helal Miah retained his ‘buy’ recommendation for ‘investors seeking a recovery potential and willing to accept a higher level of risk’ following last week’s results saw the shares rally 7%. They dipped 1%, or 2.3p, to 213p on Monday.

‘Overall the group has shown some positive progress, it operates in a defensive market with significant growth opportunities,’ said Miah.

‘While the shares are a long way off from its highs, we believe this is a growth opportunity to pick up these shares for the long term.’

He added that the underlying market for Convatec is ‘defensive in nature, but growth opportunities exist from ageing populations, the increased prevalence of chronic conditions, and the fact that patients are living longer with these conditions’.

Key stats
Market capitalisation£394m
No. of shares out55m
No. of shares floating38m
No. of common shareholdersnot stated
No. of employees405
Trading volume (10 day avg.)m
Turnover£160m
Profit before tax£34m
Earnings per share48.31p
Cashflow per share49.80p
Cash per share62.92p

Gleeson now fairly valued, says Peel Hunt

Shares in housebuilder Gleeson (GLEG) have fallen 10% this year but are still trading at a premium to the sector average, says Peel Hunt.

Analyst Alex Stout retained his ‘hold’ recommendation and target price of 715p, which factors in 4% upside, following a ‘solid set’ of interim results. The shares gained 4.7%, or 33p, to 723p on Monday.

‘The outlook for the business remains good, driven by strong demand for its affordable homes,’ said Stout. ‘With good land availability we expect Gleeson to achieve its 2,000 unit completion target well within five years.’

‘Using our sum-of-the-parts valuation we retain our target price of 715p… We believe the shares are fairly valued and retain our ‘hold’ recommendation,’ he said.

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  • Reckitt Benckiser Group PLC (RB.L)
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  • Fidessa Group PLC (FDSA.L)
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  • Spectris PLC (SXS.L)
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  • ConvaTec Group PLC (CTEC.L)
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  • MJ Gleeson PLC (GLEG.L)
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