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The Expert View: Redrow, Halfords & Virgin Money

Our daily roundup of analyst commentary on stocks, including DMGT and 888.

by Michelle McGagh on Sep 06, 2017 at 05:01

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Key stats
Market capitalisation£2,393m
No. of shares out370m
No. of shares floating214m
No. of common shareholdersnot stated
No. of employees1866
Trading volume (10 day avg.)1m
Turnover£1,382m
Profit before tax£200m
Earnings per share55.25p
Cashflow per share55.53p
Cash per share36.51p

Numis downgrades strengthening Redrow

Numis is confident about the long-term outlook for Redrow (RDW) but has downgraded the housebuilder after a rally in the share price.

Analyst Chris Millington downgraded his recommendation from ‘buy’ to ‘add’ though increased his share price target to 729p following full year results showing a 26% hike in profits before tax to £315 million.

He said the results were ‘marginally above previously upgraded estimates for 2017’ and the company has ‘enhanced its longer-term guidance’.

‘In our view, this highlights management’s confidence in the outlook, and if these targets are attained, means that Redrow will couple high levels of earnings growth with an emerging income story,’ said Millington.

‘We increase our target price to 729p based on Redrow’s long-term forecasts but the strength in the share price means our recommendation now moves to “add”.’

Key stats
Market capitalisation£641m
No. of shares out199m
No. of shares floating199m
No. of common shareholdersnot stated
No. of employees11201
Trading volume (10 day avg.)1m
Turnover£1,095m
Profit before tax£56m
Earnings per share28.62p
Cashflow per share44.65p
Cash per share8.29p

Hargreaves: Halfords is changing up a gear

The turnaround strategy at Halfords (HFD) continues to put the car parts and bicycle retailer on the road to recovery and Hargreaves Lansdown hopes it won’t go into reverse when the chief executive departs.

The shares rose 2.1% on the back of a trading statement reporting half-year revenues up 4.8%. Analyst Nicholas Hyett said the ‘Moving Up A Gear’ strategy enforced by chief executive Jill McDonald has ‘got Halfords’ sales engine firing again’ and the ‘revamped and refocused offer seems to have got Halfords into exactly the right place to meet customers needs’.

‘Services revenues are motoring, while better use of customer data means the group can improve marketing efficiency and drive incremental sales,’ he said.

However, Hyett has one concern; the departure of McDonald in a few months’ time. ‘The new chief executive will want to stamp their mark on the business at a time when what looks like a successful strategy is still bedding. We wouldn’t want to see any fancy manoeuvres thrown in to spice up a simple gear change,’ he said.

Key stats
Market capitalisation£1,193m
No. of shares out455m
No. of shares floating283m
No. of common shareholdersnot stated
No. of employees2394
Trading volume (10 day avg.)2m
Turnover£948m
Profit before tax£130m
Earnings per share29.05p
Cashflow per share36.00p
Cash per share319.57p

Capital question marks hang over Virgin Money, says Jefferies

Jefferies may not be pricing in an equity raise at Virgin Money (VM) but the market may be as shares in the lender have fallen since interim results at the end of July.

Analyst Kapilan Pillai retained his ‘buy’ recommendation and target price of 430p on the stock, which had dipped 0.5%, or 1.5p, to 260p at the time of writing yesterday.

‘While our base case incorporates no equity raise, investor feedback plus the 13% share price fall post H1 2017 results suggest the market may be pricing one in,’ he said.

He said the ‘anxiety over the capital trajectory will only likely increase’ as Virgin Money has not planned a capital disclosure in the third quarter, leaving the market guessing.

‘A 10% placing plus rebasing the dividend per share to 3p in 2018/19 would raise £140 million of equity, adding 1.2% to 2019 [capital reserves]. This would dilute 2019 return on tangible equity by 1% to 11.4% but take any capital question marks off the table.’

Key stats
Market capitalisation£2,312m
No. of shares out373m
No. of shares floating262m
No. of common shareholdersnot stated
No. of employees10205
Trading volume (10 day avg.)1m
Turnover£1,753m
Profit before tax£141m
Earnings per share36.53p
Cashflow per share68.56p
Cash per share23.72p

Liberum: on balance DMGT shares are well priced

Figuring out the future of Daily Mail owner DMGT (DMGT) is a balancing act but Liberum believes the shares are still ‘attractively priced’.

Analyst Ian Whittaker retained his ‘buy’ recommendation but reduced the target price from 900p to 785p driven by ‘our more cautious view on DMG information (division)’.

‘A number of DMG’s information’s businesses are challenged, including Hobsons’ admissions business due to the decline in US higher education enrolments and Landmark & Searchflow due to the lower residential transaction volumes,’ he said.

However, Whittaker retained his ‘buy’ recommendation due to three reasons: ‘DMG media is close to seeing its digital advertising growth offsetting advertising print decline; there is significant potential to unlock value from a portfolio reorganisation; and at 12x full year 2018 price/earnings and offering a full-year 2018 dividend yield of 3.8%, the shares look attractively priced.’

At the time of writing on Tuesday the shares were 1p softer at 620p.

Key stats
Market capitalisation£903m
No. of shares out360m
No. of shares floating216m
No. of common shareholdersnot stated
No. of employees1353
Trading volume (10 day avg.)1m
Turnover402m USD
Profit before tax40m USD
Earnings per share0.11 USD
Cashflow per share0.15 USD
Cash per share0.37 USD

888 hit by unexpected tax bill

Uncertainty at 888 (888) caused by a surprise tax bill has forced Peel Hunt to lower its target price and warn of special dividend suspensions.

Analyst Ivor Jones reiterated his ‘buy’ recommendation but lowered the target price from 350p to 320p after 888 was forced to put aside $45 million – or 10p per share – to cover an historic German VAT bill.

A further 4p per share, or $19 million, has also been identified to cover a potential VAT liability.

Jones said it is unclear whether VAT was payable by 888 in Germany prior to 2015 when the VAT regime change, making it difficult to pinpoint the exact cost of the bill.

‘The amounts referred to…are the group’s current best estimates of the potential liabilities,’ he said.

‘To reflect the uncertainty over quantum and timing, and likely investor reaction, we have reduced our target price by double the potential liability…We have also assumed that recurring ‘special’ dividends will be suspended while the uncertainty remains.’

He added that despite the tax setback, the first half results show ‘the strength that results from the diversity of the group’ and makes the shares a ‘buy’.

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Look up the shares

  • Redrow PLC (RDW.L)
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  • Halfords Group PLC (HFD.L)
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  • Virgin Money Holdings (UK) PLC (VM.L)
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  • Daily Mail and General Trust P L C (DMGOa.L)
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  • 888 Holdings PLC (888.L)
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