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The Expert View: Royal Mail, Intertek and RPC

Our daily roundup of analyst commentary on shares, also including Mattioli Woods and ITE.

by Michelle McGagh on Jun 05, 2018 at 05:00

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Key stats
Market capitalisation£5,000m
No. of shares out1,000m
No. of shares floating996m
No. of common shareholdersnot stated
No. of employees158955
Trading volume (10 day avg.)6m
Profit before tax£1,035m
Earnings per share25.75p
Cashflow per share61.14p
Cash per share60.00p

More headwinds for Royal Mail, says Liberum

Liberum is predicting further headwinds for Royal Mail (RMG) and the productivity improvements are a stretch.

Analyst Gerald Khoo retained his ‘sell’ recommendation and lowered the target price from 450p to 415p on the stock on a ‘more cautious outlook for letters revenue on GDPR’. The shares rose 3p to 499.4p yesterday.

He said ‘general business uncertainty adds short-term headwinds to our longer-term bear case’ and that Royal Mail would struggle to ‘fully offset declining letters revenue with parcels growth, some of which is driving higher costs and adverse productivity’.

‘The latter remains a key challenge, with the combination of pay rises, non-wage inflation, and working week reductions requiring productivity improvements well in excess of the historic achieved rate,’ said Khoo.

Key stats
Market capitalisation£9,036m
No. of shares out161m
No. of shares floating160m
No. of common shareholdersnot stated
No. of employees43906
Trading volume (10 day avg.)m
Profit before tax£560m
Earnings per share168.65p
Cashflow per share247.42p
Cash per share84.89p

The Share Centre: Intertek well positioned for growth

Quality and safety services provider Intertek (ITRK) is seeing demand for its services and The Share Centre is expecting it to take further market share as it pushes into new geographies. Analyst Helal Miah said the stock was a ‘buy’ for ‘investors seeking capital growth and willing to accept a medium level of risk’. The shares were up 1.9% at £56.02 yesterday.

‘The global quality assurance industry is worth $250 billion and it has attractive structural growth prospects driven by corporate risk management, global trade flows, demand for energy, expanding regulations, more complex sourcing, and distribution networks,’ he said.

Miah added that emerging economies were ‘a long way behind’ in terms of safety standards and presents ‘growth potential’.

‘We consider the company’s activities as being relatively defensive but still well positioned to gain market share,’ said Miah. ‘Its exposure to commodities and oil will add an element of volatility… it is an acquisitive company with a good track record on integrating acquired firms into current operations and so we continue with our “buy” recommendation.’

Key stats
Market capitalisation£3,150m
No. of shares out407m
No. of shares floating395m
No. of common shareholdersnot stated
No. of employees25000
Trading volume (10 day avg.)2m
Profit before tax£454m
Earnings per share36.80p
Cashflow per share82.58p
Cash per share62.21p

Rerating potential at RPC, says Jefferies

Concerns around plastics manufacturers like RPC (RPC) are ‘overdone’, according to Jefferies, which believes the company is in line for a rerating.

Analyst Cole Hathorn retained his ‘buy’ recommendation and target price of £11.50 on the shares, which fell 2% to 773.8p yesterday.

Hathorn is predicting full-year results later this week will see RPC reiterate that its European integration programme is now substantially complete and confirm cost savings.

‘RPC is the European plastic packaging leader with a c.6% market share in a fragmented industry,’ he said. ‘RPC polymer purchasing scale and production flexibility is a key competitive advantage, allowing RPC to buy polymer around 10% to 20% cheaper than peers. With both organic and further accretive mergers and acquisitions opportunities, we remain confident in RPC delivering medium-term growth.

‘Trading on a discount to EU peers, we think concerns are overdone and we see rerating upside.’

Key stats
Market capitalisation£154m
No. of shares out20m
No. of shares floating12m
No. of common shareholdersnot stated
No. of employees270
Trading volume (10 day avg.)m
Profit before tax£6m
Earnings per share19.14p
Cashflow per share25.28p
Cash per share44.04p

Shore Capital: Mattioli Woods transfer suspension an opportunity

The surprise decision by Mattioli Woods (MTWL) to cease pension transfers presents a buying opportunity, says Shore Capital.

Analyst Paul McGinnis retained his ‘hold’ recommendation on the company after it announced it would stop advice on the transfer of safeguarded pension benefits after ‘being in dialogue’ with the regulator, the Financial Conduct Authority (FCA).

‘We would expect the shares to open lower given the unexpected nature of the announcement, with the market inevitably seeking to establish whether the internal review may result in any customer redress of FCA action,’ he said.

‘We would be surprised if this were to be the case given the high standards applied internally and extensive training Mattioli Woods consultants undertake.’

McGinnis said his last ‘fair value’ price of 785p was slightly below the current share price and any ‘disproportionate reaction’ to the news would be ‘an opportunity at this early stage’.

The shares fell 4.7% to 760p yesterday.

Key stats
Market capitalisation£401m
No. of shares out270m
No. of shares floating265m
No. of common shareholdersnot stated
No. of employees1393
Trading volume (10 day avg.)m
Profit before tax£30m
Earnings per share-3.13p
Cashflow per share3.77p
Cash per share8.66p

Peel Hunt a ‘hold’ after ITE acquisition of Ascential events

Peel Hunt has reinstated a recommendation on ITE (ITE) after holding the conference organiser ‘under review’ following the deal to buy Ascential’s portfolio of events for £300 million.

Analyst Malcolm Morgan placed a ‘hold’ recommendation on the shares and reduced the target price from 160p to 150p. ITE rose 1.7% to 37p yesterday.

He said the deal was ‘consistent’ with the group’s strategy and offered ITE ‘scope for international growth’ although the ‘macro call of buying retail-focused UK events may be questioned’.

‘There is much in the deal for investors to support,’ said Morgan.

‘Execution should be low risk. The assets are high quality. Our only substantial concern is the timing of buying UK assets for a full price. Ahead of the detail of the rights and shareholder approval, we set our target price at 150p and recommendation as “hold”, reflecting the reduced forecast post interims.’

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  • Intertek Group PLC (ITRK.L)
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  • ITE Group PLC (ITE.L)
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  • Mattioli Woods PLC (MTWL.L)
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  • Royal Mail PLC (RMG.L)
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  • RPC Group PLC (RPC.L)
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