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The Expert View: RPC, Tullow Oil and St Modwen

Our daily roundup of analyst commentary on shares, also including Entertainment One and Tate & Lyle.

by Michelle McGagh on Jun 08, 2017 at 05:01

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Key stats
Market capitalisation£m
No. of shares out415m
No. of shares floating401m
No. of common shareholdersnot stated
No. of employees20000
Trading volume (10 day avg.)2m
Profit before tax£55m
Earnings per share18.06p
Cashflow per share46.74p
Cash per share40.02p

Hargreaves: 'yo-yo' RPC drops on cost concerns not dividend growth

Concerns have been raised about the integration expenses paid by acquisitive plastics manufacturer RPC Group (RPC) but Hargreaves Lansdown said the dividend made up for it.

The company posted full-year results that were ahead of expectation, with operating profit up 77% to £308.2 million and a final dividend of 17.9p, resulting in a full-year dividend of 24p – up 50% on last year.

The shares rose 4% in early trading before sharply reversing course to close 61.5p or 7.2% down at 788.5p.

Analyst Nicholas Hyett said the group had become a ‘yo-yo to sentiment in recent months’.

‘Following the group’s announcement that it would be acquiring US packing group Letica early this year, concerns emerged that the group’s extensive acquisition programme was concealing poor underlying operating performance, with “exceptional” acquisition costs a regular feature of results,’ he said.

‘The group has tried to address these concerns with increased disclosure in these results but has clearly ailed to satisfy the market.’

Hyett said the costs of acquisition ‘should come as no surprise’ and that he preferred to focus on the strong operating performance and the 24th year of consecutive dividend growth.

Key stats
Market capitalisation£1,611m
No. of shares out911m
No. of shares floating851m
No. of common shareholdersnot stated
No. of employees2071
Trading volume (10 day avg.)8m
Turnover1,483m USD
Profit before tax-1,043m USD
Earnings per share-1.15 USD
Cashflow per share-0.75 USD
Cash per share0.23 USD

Barclays ‘overweight’ Tullow Oil after two-year revamp

Barclays has lifted its rating suspension on Tullow Oil (TLW) as it believes a two-year long makeover has resulted in a balanced and sustainable business.

Analyst James Hosie gave Tullow an ‘overweight’ recommendation and target price of 220p. The shares advanced 7.9p to close 4.6% up at 178.9p.

‘Tullow is close to concluding a two-year reset of the business, with a debt refinancing the last outstanding after an extensive cost-efficiency program, portfolio rationalisation and $750 million rights issue,’ he said.

‘The journey has required many difficult decisions, but we believe the end result is a balanced exploration and production business with a portfolio that can grow and remain self-sufficient in a $50 per barrel oil environment.’

Hosie added that Tullow ‘offers investors exposure to rising low-cost oil production in Ghana that is generating free cashflow, while a further phase of medium-term growth comes from Uganda and Kenya’.

Key stats
Market capitalisation£793m
No. of shares out222m
No. of shares floating182m
No. of common shareholdersnot stated
No. of employees345
Trading volume (10 day avg.)m
Profit before tax£53m
Earnings per share22.05p
Cashflow per share22.42p
Cash per share1.89p

Numis predicts 10% returns at St Modwen

Numis expects St Modwen’s (SMP) portfolio to deliver a 10% total return once the property developer steps up residential and commercial builds.

Analyst Chris Millington retained his ‘buy’ recommendation and target price of 432p on the stock after a company update. The shares gained 19.3p to close 5.8% higher at 351.5p.

The update confirmed the company was trading in line with expectations and benefiting from its ‘diversified portfolio of income producing and development assets’, said Millington.

‘We remain of the view that the portfolio should be able to generate a total return of 10% against a flat market backdrop once residential and commercial development activity steps up,’ he added.

‘Despite this profile the shares are trading at a 29% discount to 2018 net asset value.’

Millington added the group was holding a capital markets event where it would outline its plans for ‘value creation’ that will include accelerating commercial developments and growing the residential business.

Key stats
Market capitalisation£971m
No. of shares out430m
No. of shares floating412m
No. of common shareholdersnot stated
No. of employees1529
Trading volume (10 day avg.)2m
Profit before tax£13m
Earnings per share3.00p
Cashflow per share104.78p
Cash per share31.05p

Entertainment One facing increased debt, says Peel Hunt

Debt is set to increase at Entertainment One (ETO) as the independent film distributor has to restructure its film costs, says Peel Hunt.

Analyst Malcolm Morgan retained his ‘hold’ recommendation and increased the target price from 225p to 240p despite cutting estimates. He reduced 2018 profit before tax forecasts by 1.4% and estimated earnings per share were reduced by 7.1%, which is ‘slightly more than we had expected initially’.

‘Debt is set to increase sharply, reflecting additional content spend and the exceptional cost of the film restructuring,’ he said.

‘Our sum-of-the-parts valuation rolls on to 2019 forecasts. The growth in base numbers – albeit lower than hoped for previously – offsets the impact of higher debt.’

The shares shed 10.3p or 4.4% to 225p.

Key stats
Market capitalisation£3,434m
No. of shares out465m
No. of shares floating456m
No. of common shareholdersnot stated
No. of employees4161
Trading volume (10 day avg.)3m
Profit before tax£255m
Earnings per share54.12p
Cashflow per share85.74p
Cash per share56.17p

Jefferies downgrades Tate & Lyle on slowdown fears

Jefferies has downgraded Tate & Lyle (TATE) in anticipation of softer pricing next year and slower progress towards targets in speciality food ingredients markets.

Analyst Martin Deboo downgraded his recommendation from ‘buy’ to ‘hold’ and reduced the target price from 870p to 800p, claiming the shares are ‘peaky enough for now’. The shares were trading down 1.5%, or 12p, at 742p at the time of writing.

‘An anticipated softer pricing climate in 2018 and slow progress towards speciality food ingredients goals finally saps our conviction,’ he said.

‘There remains plenty of upside if Tate can convince around speciality food ingredients. But that isn’t the work of months, against which the shares are up 50% from the trough, with cyclical surprises now less likely. We move to the sidelines, after a breathless couple of years.’

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