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The Expert View: Sainsbury’s, BHP Billiton and Persimmon
Our daily roundup of analyst commentary on shares, also including Provident Financial and Just Eat.
by Michelle McGagh on Feb 24, 2016 at 05:00
Sainsbury’s faces competition in Home Retail bid
Sainsbury’s (SBRY) is re-examining its bid for Home Retail Group after a last-minute bid from furniture retailer Steinhoff.
Shore Capital analyst Clive Black retained his ‘hold’ recommendation and a ‘fair value’ price of 257p on the stock. The shares fell 1.6% to 251.2p yesterday.
‘The deadline for Sainsbury’s to make a bid for Home Retail Group has been extended to 18 March. The extension follows on from the surprise late in the day approach from Frankfurt-listed integrated furniture group Steinhoff.
‘According, Sainsbury’s management has decided to undertake more work on Home Retail rather than throwing in the towel or straightaway counter-bidding Steinhoff’s 175p cash offer – including the Homebase distribution and a 2.8p final dividend. Sainsbury’s has so far offered 55p and 0.321 Sainsbury’s share, equated to 161p,’ said Black.
‘While we naturally have to await Sainsbury’s decisions, we would not be surprised if it did make Steinhoff work for Argos, noting the ample scale of [Steinhoff]. Sainsbury’s will no doubt also be keeping an eye on the thresholds for an equity issue with or without needing shareholder approval while remaining within sensible tolerances on not overpaying.’
BHP digging around for acquisition target
Miner BHP Billiton (BLT) has cut its dividend by even more than analysts at Jefferies had expected, but its restructuring plan should reassure.
Analyst Christopher LaFemina retained his ‘buy’ recommendation and target price of 800p on the shares, which fell 6.1% to 746.9p yesterday as the miner revealed it had fallen to its first loss in more than 16 years in the second half of 2015.
‘More importantly, the company announced a new management structure, capital expenditure reductions, planned productivity gains, a new dividend policy, and clear capital allocation priorities. These changes are aimed at freeing up cash and should therefore be a positive for BHP shares,’ he said.
‘We expect the company to use its financial flexibility to acquire an asset – most likely in copper – in the near term.’
‘This [dividend] reduction combined with the announced capital and operational expenditure cuts gives BHP significant financial flexibility to buy an asset. We would not rule out an acquisition of a world class copper asset in the $5 billion range, if the opportunity emerges.’
Just Eat delivers a buying opportunity
Share weakness for online takeaway service Just Eat (JE) has created a buying opportunity.
Investec analyst Alex Paterson initiated coverage with a ‘buy’ recommendation and a target price of 435p on the shares, which rose 1.8% to 377.8p yesterday.
‘Recent market weakness provides a good entry point to acquire what we believe is an industry-leading and highly cash generative growth company,’ he said.
‘While competition is intensifying, particularly at the premium end of the market, we believe barriers to both entry and switching in the mass market are high. Assuming only organic growth from here, Just Eat would trade on a sub-market enterprise value/earnings multiple within four years, despite offering considerably above market growth.’
Persimmon sets out capital return plan
Shares in Persimmon (PSN) still look expensive despite the housebuilder’s capital return plan.
Liberum analyst Charlie Campbell retained his ‘sell’ recommendation and target price of £17.45 on the shares, which rose 2.8% to £20.29 yesterday.
‘Persimmon’s 2015 results beat expectations by around 5%, rising 34% in the year, with the surprise driven by better than forecast margin growth, from 18% to 22%,’ he said.
‘Persimmon has also increased the capital return plan, by 280p, and pledged to pay out 110p per annum in 2016-2021, giving a yield of 5.6% per annum. The shares still look expensive against the sector of 2.4x 2016 estimated book value but yield support is growing. Persimmon is clearly managing build costs very well, limiting a major source of risk for the shares.’
Provident Financial: looks strong but shares are high
Payday lender Provident Financial (PFG) has delivered strong full-year results and earnings growth but the share price is high.
Peel Hunt analyst Stuart Duncan retained his ‘hold’ recommendation and target price of £31.00 on the shares, which rose 2.1% to £32.67 yesterday.
‘There should be few surprises in Provident’s [full-year] figures…given the key numbers were reported in January’s trading update. It is hard to find much to criticise in the statement, with the current year also having started well. However, we maintain our “hold” recommendation with the stock trading on over 18x December 2016 forecasts,’ he said.
‘Provident’s shares have performed strongly over the past 12 months, albeit recent market volatility did lead to some weakness. The shares now trade on a December 2016 price/earnings ratio multiple of 18.4x, while yielding 4.2%.
Although Provident is one of the few stocks in the financials sector that is delivering earnings growth, this looks high enough for now.’
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Look up the shares
- J Sainsbury PLC (SBRY.L)
- Persimmon PLC (PSN.L)
- Just Eat PLC (JE.L)
- BHP Billiton PLC (BLT.L)
- Provident Financial PLC (PFG.L)