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The Expert View: Rolls-Royce, N Brown & Aveva

Our daily roundup of analyst comment on shares, including Majestic Wine and Just Eat.

by Michelle McGagh on Jun 15, 2018 at 05:30

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Key stats
Market capitalisation£16,078m
No. of shares out1,860m
No. of shares floating1,849m
No. of common shareholdersnot stated
No. of employees50000
Trading volume (10 day avg.)5m
Turnover£16,307m
Profit before tax£2,198m
Earnings per share230.00p
Cashflow per share277.55p
Cash per share159.35p

Hargreaves: Rolls-Royce jobs cuts aim to free up £1bn cash

A restructure at Rolls-Royce (RR) will see 4,600 jobs go and huge cost savings, which Hargreaves Lansdown says will be a positive for the UK aerospace industry.

The aerospace giant’s retrenchment aims to save £400 million a year by 2020 and reduce headcount by 9%. Guidance for the 2018 financial year remains unchanged but over the medium to longer-term the group wants to deliver free cash flow of £1 billion.

Investors liked the sound of that pushing up the shares 6.3% to close 52p higher at 881p.

Analyst Nicholas Hyett said ‘a slimmer, more efficient Rolls-Royce is good for UK aerospace in the long run’.

‘Improved cash generation following the restructuring should strengthen the group’s financial position going forward, but there’s no getting away from the fact that Rolls is still a capital intensive business in a pretty competitive industry,’ he said.

Key stats
Market capitalisation£524m
No. of shares out285m
No. of shares floating147m
No. of common shareholdersnot stated
No. of employees2,644
Trading volume (10 day avg.)0.4m
Turnover£922m
Profit before tax£121m
Earnings per share4.40p
Cashflow per share14.29p
Cash per share20.46p

N Brown store closures ‘positive’, says AJ Bell

News that specialist clothing retailer N Brown (BWNG) is thinking of closing all its stores is not as dramatic as it sounds and may be a positive move, says AJ Bell.

The group’s 20 stores only account for around 2% of group revenue. Analyst Russ Mould said it was a sign of changing times that retailers are ‘brave enough to reshape their business to match how consumers buy goods’

‘To put the situation in context, N Brown generates 75% of its sales online and three quarters of these transactions are made via mobile devices,’ he said.

‘The company makes the remainder of its money in areas like customer credit.’

While Mould said the store closure would ‘sadly cause job losses’ it ‘could be a positive decision for the business over the long term’.

The shares edged 0.1%, or 0.2p, lower to 197p.

Key stats
Market capitalisation£4,565m
No. of shares out161m
No. of shares floating64m
No. of common shareholdersnot stated
No. of employees1692
Trading volume (10 day avg.)m
Turnover£216m
Profit before tax£57m
Earnings per share59.37p
Cashflow per share72.85p
Cash per share204.68p

All to play for at Aveva, says Numis

Full-year results from Aveva (AVV) show the software company is on the front foot after merging with Schneider Electric and the opportunities to grow are ‘second to none’, according to Numis.

Analyst David Toms retained his ‘add’ recommendation and target price of £29.40 on the stock after annual results were ‘ahead even of our indications’ with 10% underlying growth.

‘While there is clearly a lot of integration work to do, management is very much on the front foot, buoyed by strong trading and a clear sense of purpose on cost,’ he said.

‘Everything is going in Aveva’s direction, and the scale of opportunity is second to none: on 30x 2019 price/earnings...we think there is rating and earnings upside.’

The shares shot up 11%, or 282p, to £28.14.

Key stats
Market capitalisation£329m
No. of shares out72m
No. of shares floating50m
No. of common shareholdersnot stated
No. of employees1589
Trading volume (10 day avg.)m
Turnover£465m
Profit before tax£12m
Earnings per share-4.09p
Cashflow per share13.07p
Cash per share32.51p

Majestic needs to show growth, says Peel Hunt

Majestic Wine (WINE) annual results were good but the wine retailer will need to start showing signs of growth for the shares to kick off again, says Peel Hunt.

Analyst Jonathan Pritchard retained his ‘buy’ recommendation and target price of 500p on the stock, which rose 2%, or 9p, to 459p after reporting adjusted pre-tax profits of £17.2 million, up from £12.9 million.

Revenues rose 2.3% to £476.1 million, mainly driven by its independent winemaking business Naked Wines, with conditions in its stores remaining tough with competition from online rivals and discounters Aldi and Lidl.

Pritchard said it was ‘good to hear a reiteration of the bullish plans for Naked and learn about the stability of the core Majestic business’.

‘Will a held forecast be enough to galvanize the shares? Possibly not but [it] was never going to be anything more than a holding statement and the growth plans now need to start showing signs of reaping fruit before the shares can really kick on again,’ said Pritchard.

‘Certainly a worthy 'buy' for the medium term though as we are in the believers’ camp,’ he added.

Key stats
Market capitalisation£5,503m
No. of shares out681m
No. of shares floating587m
No. of common shareholdersnot stated
No. of employees2116
Trading volume (10 day avg.)3m
Turnover£546m
Profit before tax£159m
Earnings per share-15.17p
Cashflow per share-9.62p
Cash per share38.99p

Just Eat share price fall an ‘overreaction’, says Liberum

Liberum believes the share price falls at Just Eat (JE) on the threat of expansion plans from rival Deliveroo are overdone.

Analyst Ian Whittaker reiterated his ‘buy’ recommendation and target price of 850p on the stock after shares fell back 5% on Wednesday on news that Deliveroo would allow restaurants to use their own drivers for delivery and that it was adding 5,000 new restaurants to its platform.

Whittaker said the fall was an ‘overreaction’ as ‘we doubt restaurants would switch to Deliveroo from Just Eat’ as the latter had ‘major first mover advantage’.

Additionally ‘Deliveroo and Just Eat, are in some ways operating in different markets’, as the former targets higher-end restaurants while Just Eat serves the mass market. And finally, ‘there is a network benefit effect which creates a virtuous circle for a market leader - and this means Just Eat is likely to continue the bulk of the shift from telephones to online delivery’.

Just Eat shares softened 0.8p to 809p.

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  • Rolls-Royce Holdings PLC (RR.L)
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  • N Brown Group PLC (BWNG.L)
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  • AVEVA Group PLC (AVV.L)
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  • Majestic Wine PLC (WINEW.L)
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  • Just Eat PLC (JE.L)
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