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The Expert View: Royal Mail, Dunelm and Polar Capital

Our daily roundup of analyst commentary on shares, also including Oxford Instruments.

by Michelle McGagh on Apr 14, 2017 at 05:00

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Key stats
Market capitalisation£1,214m
No. of shares out202m
No. of shares floating95m
No. of common shareholdersnot stated
No. of employees5675
Trading volume (10 day avg.)m
Turnover£881m
Profit before tax£102m
Earnings per share50.33p
Cashflow per share62.78p
Cash per share7.38p

Consumer income squeeze hits Dunelm, says Jefferies

Falling sales at homewares retailer Dunelm (DNLM) show there is a squeeze on consumers’ disposable income, leading Jefferies to cut its estimates.

Analyst Caroline Gulliver reiterated her ‘underperform’ recommendation and reduced the target price from 650p to 515p after third quarter like-for-like sales were down 2%. The shares were trading down 2.9%, or 17.5p, at 585p at the time of writing.

She said the numbers ‘confirmed a deteriorating macro-economic backdrop for UK discretionary spending’.

‘We like Dunelm’s improved store format but given our weak survey results for Dunelm we conclude that the consumer slowdown will overwhelm the benefits from management’s strategy, at least for the next six-to-12 months. We cut our full-year 2018 estimated profit before tax by a further 7%.’

Key stats
Market capitalisation£485m
No. of shares out57m
No. of shares floating53m
No. of common shareholdersnot stated
No. of employees2077
Trading volume (10 day avg.)m
Turnover£362m
Profit before tax£9m
Earnings per share16.08p
Cashflow per share56.29p
Cash per share38.05p

Shore Capital: more value could emerge at Oxford Instruments

Technology tools maker Oxford Instruments (OXIG) is showing signs of improvement and Shore Capital believes underlying value could emerge from the shares.

Analyst Ben McSkelly retained his ‘hold’ recommendation on the stock following a trading statement for the year to 31 March. The company is expecting performance to be in line with the previous year.

The shares were trading down 1.1%, or 9.5p, at 852p at the time of writing.

‘We believe the business retains its challenges... however, we have been encouraged by the actions taken by the new management team; the wire disposal, focus on increased customer intimacy and targets for margin improvement in nanotechnology,’ he said.

‘If management can deliver on these objectives, we could see underlying value emerge in the shares. However, with the ongoing challenges in the business we await evidence of further recovery.’

Key stats
Market capitalisation£346m
No. of shares out91m
No. of shares floating65m
No. of common shareholdersnot stated
No. of employees110
Trading volume (10 day avg.)m
Turnover£85m
Profit before tax£19m
Earnings per share20.13p
Cashflow per share20.66p
Cash per share53.46p

Polar point north after inflows boost

Peel Hunt expects the positive momentum seen at Polar Capital (POLR) to continue, boosted by inflows and strong market moves.

Analyst Stuart Duncan retained his ‘buy’ recommendation and placed his target price of 355p ‘under review’. The shares were trading up 1.6%, or 6.2p, at 375p at the time of writing.

The company reported a second successive quarter of net inflows of $270 million and strong quarterly investment performance of $994 million.

‘The positive momentum has been better than expected, with a consecutive quarter of inflows and strong market movements,’ he said.

‘Performance across the funds has improved and we anticipate a continuation of positive momentum that supports our “buy” recommendation. We place our target price under review subject to our model assumptions.’

Key stats
Market capitalisation£4,231m
No. of shares out1,000m
No. of shares floating987m
No. of common shareholdersnot stated
No. of employees156535
Trading volume (10 day avg.)4m
Turnover£9,251m
Profit before tax£215m
Earnings per share21.40p
Cashflow per share49.16p
Cash per share36.80p

Royal Mail pension costs not over, says Hargreaves Lansdown

Royal Mail (RMG) is shutting its pension plan but Hargreaves Lansdown said the replacement would be costly.

Shares rose on Thursday on the news that it was shutting its expensive defined benefit pension plan to future accrual on 31 March 2018. At the time of writing the shares were up 1.1%, or 4.8p, at 424p.

Analyst Nicholas Hyett said although the scheme ran a surplus, a review on company contributions has been ‘hanging over the group for some time’.

‘Royal Mail’s current contributions to this scheme alone are about 10% of total salary costs, including wages of staff who are not members of the scheme. These were expected to more than double to over £1 billion in 2018, equivalent to around 25% of the group’s entire 2015/16 wage bill,’ he said.

Although it may no longer be facing that cost, Hyett said ‘with a highly unionised workforce... introducing an alternative plan is likely to prove costly’.

‘Whether those costs will be in the form of chunky employer contributions to a new defined contribution scheme or lost revenue from industrial action remains to be seen,’ he said.

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  • Dunelm Group PLC (DNLM.L)
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  • Oxford Instruments PLC (OXIG.L)
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  • Royal Mail PLC (RMG.L)
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  • Polar Capital Holdings PLC (POLR.L)
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