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The Expert View: Reckitt, Interserve and Crest Nicholson

Our daily roundup of analyst commentary on shares, also including Ted Baker and Marshalls.

by Michelle McGagh on Mar 23, 2018 at 05:00

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Key stats
Market capitalisation£41,721m
No. of shares out704m
No. of shares floating658m
No. of common shareholdersnot stated
No. of employees34700
Trading volume (10 day avg.)2m
Turnover£11,512m
Profit before tax£3,345m
Earnings per share274.92p
Cashflow per share308.67p
Cash per share301.93p

Jefferies: relief as Reckitt walks away from Pfizer

News that Reckitt Benckiser (RB) has walked away from bidding on Pfizer’s consumer healthcare business has been welcomed by investors.

Jefferies analyst Martin Deboo retained his ‘hold’ recommendation and target price of £63.70 on the shares, which jumped 4.8% to £58.95 yesterday.

‘Reckitt Benckiser is walking away from Pfizer. We expect this to be a near-term positive for the shares as the market celebrates the avoidance of either leverage beyond the pale or a dilutive equity raise avoided,’ he said.

‘The challenge for Reckitt Benckiser beyond that is to refashion its growth strategy from more organic timber.’

He added that the company needed to get its ‘growth mojo working again’ but the positive news was that it has ‘plenty of white space to go for in... synergies’.

Key stats
Market capitalisation£146m
No. of shares out146m
No. of shares floating134m
No. of common shareholdersnot stated
No. of employees46246
Trading volume (10 day avg.)4m
Turnover£3,149m
Profit before tax£125m
Earnings per share-71.22p
Cashflow per share-22.53p
Cash per share77.76p

Opportunity in Interserve debt deal, says Peel Hunt

Support services company Interserve (IRV) has arranged new banking facilities meaning it can go ahead with its recovery plans and a possible debt-to-equity transfer, says Peel Hunt.

Analyst Andrew Nussey retained his ‘buy’ recommendation and target price of 140p on the stock after it announced an ‘agreement in principle’ on new banking facilities of £834 million to September 2021, which he said provided ‘comfortable headroom’. The shares rallied 13% to 99.3p yesterday on the news.

‘Although expensive, it provides Interserve with an opportunity to execute its recovery plans such that all stakeholder interests can be maximised,’ he said.

‘Our revised estimates - full year 2019 earnings per share reduced by 50% to 24p - reflect the arrangement and full warrant dilution. However, the implied 3.7x 2018 price/earnings is attractive given the potential self-help earnings per share recovery trajectory’.

He added there was ‘the potential for a material debt-to-equity transfer given the free cashflow and disposal opportunities’.

Key stats
Market capitalisation£1,189m
No. of shares out256m
No. of shares floating244m
No. of common shareholdersnot stated
No. of employees905
Trading volume (10 day avg.)2m
Turnover£1,043m
Profit before tax£213m
Earnings per share65.08p
Cashflow per share65.66p
Cash per share69.87p

Crest Nicholson shares still cheap, says Shore Capital

Housebuilder Crest Nicholson (CRST) may have rallied in the past few days but the shares are still cheap, according to Shore Capital.

Analyst Robin Hardy retained his ‘buy’ recommendation on the stock after a short first quarter update that showed trading remains in line with expectations. The shares were down 2.9% at 453.8p yesterday.

He said Crest had been ‘by some margin, the weakest performing house builder in the last few months having reached a peak share price much earlier than the rest of the sector but then fell back peak-to-trough by almost 30%’.

Hardy believed the shares were ‘discounting something calamitous… [but] that does not appear to be the case’.

‘Our fair value for Crest remains at 540p, which is now 16% above the current share price,’ he said. ‘The shares have rallied in the last few days, helped by some material holdings being disclosed, but they remain cheap in our view.’

Key stats
Market capitalisation£1,205m
No. of shares out44m
No. of shares floating29m
No. of common shareholdersnot stated
No. of employees3166
Trading volume (10 day avg.)m
Turnover£531m
Profit before tax£88m
Earnings per share104.53p
Cashflow per share151.59p
Cash per share48.45p

Ted Baker weathering the storm, says Hargreaves

Hargreaves Lansdown is confident Ted Baker (TED) can continue to increase its dividend despite the Beast from the East trying to blow it off course.

Full year results from the fashion retailer showed sales were up 11.4% to £591.7 million on last year and underlying pre-tax profit was up 11.7% to £73.5 million. The final dividend was 43.5p, bringing the total payment for 2017 to 60.1p,

But the shares were down 12.9% at £25.56 yesterday after the company warned of a tougher environment ahead.

Analyst George Salmon said there are reasons for long-term optimism including accessible prices and a well-managed expansion.

‘The online operation is growing strongly, while the steady roll-out of stores in new locations across the world is sensible, and adds further geographic diversification,’ he said.

‘These factors give us confidence that Ted Baker can keep building on its remarkable record of having raised the dividend each year this century, and by at least 10% every year other than in two years during the depths of the financial crisis.’

Key stats
Market capitalisation£833m
No. of shares out199m
No. of shares floating189m
No. of common shareholdersnot stated
No. of employees2250
Trading volume (10 day avg.)1m
Turnover£430m
Profit before tax£69m
Earnings per share21.37p
Cashflow per share28.45p
Cash per share9.95p

Marshalls gets thumbs-up from Berenberg

Management at landscaping materials company Marshalls (MSLH) has positioned the business well, with a focus on housing and transport, says Berenberg.

Analyst Lushanthan Mahendrarajah retained his ‘buy’ recommendation and target price of 510p on the stock after a teach-in with the chief financial officer.

Although he said ‘no particularly new information was disclosed’ he believes ‘management has positioned the business exceptionally well in recent years and we back management to do more of the same in the years ahead’.

Mahendrarajah said the company had chosen the ‘right areas of the UK construction market’, including the shift to specialist housing for over-65s.

‘These customers tend to have children that have left home, have paid down their mortgages, tend to be wealthier and are able to invest in their property,’ he said. ‘These are the people that typically buy Marshalls products.

‘Looking forward, management views areas such as housing, landscaping, and transport as positive, while public spending, particularly local government, is struggling.’

The shares fell 3.4% to 415p yesterday.

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  • Crest Nicholson Holdings PLC (CRST.L)
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  • Interserve PLC (IRV.L)
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  • Marshalls PLC (MSLH.L)
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  • Reckitt Benckiser Group PLC (RB.L)
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  • Ted Baker PLC (TED.L)
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