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The Expert View: Sainsbury’s, Boohoo and BBA Aviation

Our daily roundup of analyst commentary on shares, including Balfour Beatty.

on Jan 03, 2018 at 05:01

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Key stats
Market capitalisation£5,281m
No. of shares out2,190m
No. of shares floating2,079m
No. of common shareholdersnot stated
No. of employees51900
Trading volume (10 day avg.)7m
Profit before tax£1,348m
Earnings per share16.54p
Cashflow per share44.08p
Cash per share54.06p

UBS: ‘seasonal’ Argos could spoil Sainsbury’s Christmas

The acquisition of Argos by J Sainsbury’s (SBRY) has made the supermarket group more seasonal and cyclical, and could hurt its Christmas trading figures out next week, says UBS.

UBS analyst Daniel Ekstein retained his ‘buy’ recommendation and 325p share price target, however, saying a rebound in Sainsbury’s sales after a weak second quarter would probably be enough to offset a possible dip from Argos after its strong performance a year ago.

Ekstein noted that this would be the first Christmas in which Sainsbury’s had 160 Argos stores trading at its supermarkets. ‘Argos is a seasonal business, with Black Friday to Christmas being its most important trading period,’ said the analyst. ‘It is cycling a tough comparative period…the market is tough, with consumer discretionary income stagnant.’

By contrast, Sainsbury’s entered the Christmas period with ‘erratic sales momentum’ after a weak November followed a strong October.

Sainsbury’s reports third quarter sales for the 15 weeks to 6 January on 10 January, a day after Morrisons. Next kicks off the retailers’ reporting season today. Sainsbury's shares closed basically unchanged at 241p.

Key stats
Market capitalisation£2,286m
No. of shares out1,149m
No. of shares floating705m
No. of common shareholdersnot stated
No. of employees1301
Trading volume (10 day avg.)8m
Profit before tax£35m
Earnings per share2.16p
Cashflow per share2.59p
Cash per share6.26p

Jefferies backs Boohoo for 2018

Jefferies is backing strong online businesses like Boohoo (BOO) in 2018 as consumers continue to spend cautiously this year.

Analyst Caroline Gulliver retained her ‘buy’ recommendation and share price target of 280p saying the online fashion retailer had ‘consistently beaten high sales growth expectations’ and expected it to continue to do so.

The shares climbed nearly 9p or 4.7% to 197.3p.

‘2018 could be another tough year…Inflation is expected to ease into the second half of 2018, which should provide some relief. However, with real GDP growth expected to slow, ongoing Brexit negotiations and rising interest rates, we think consumers will spend prudently in 2018,’ she said.

‘In light of this, in the UK we have preference for discounters like B&M who are well positioned for any weakness in the consumer environment, strong online retailers like Boohoo, retailers with compelling self-help stories like M&S and Kingfisher, or retailers with strong brand equity like Ted Baker.’

Gulliver told investors to avoid ‘cyclically-leveraged retailers like Dunelm, or operationally challenged retailers like Sports Direct’.

Key stats
Market capitalisation£3,604m
No. of shares out1,032m
No. of shares floating1,024m
No. of common shareholdersnot stated
No. of employees6848
Trading volume (10 day avg.)2m
Turnover1,592m USD
Profit before tax350m USD
Earnings per share-0.01 USD
Cashflow per share0.12 USD
Cash per share0.13 USD

Jefferies pleased as BBA Aviation ends search for chief

BBA Aviation (BBA) has promoted Mark Johnstone, head of its engine repair business, to be its new chief executive, pleasing Jefferies which thinks he will be able to make a quick decision on the company’s capital structure.

Analyst Joe Spooner retained his ‘buy’ recommendation and target price of 340p on the stock, which eased a penny to 349p

‘Outside continued trading performance, appointment of a new chief executive and the group’s conclusion to its capital structure review have been the two areas for short-term news,’ he said. ‘[The] announcement that internal candidate Mark Johnstone will step up to the chief executive role answers one of those issues.

‘Although we had never felt that the decision on the capital structure was necessarily dependent on a new chief executive being identified, it does nonetheless help to have him fully signed up to whatever decision is announced.’

Johnstone succeeds Wayne Edmunds, a non-executive director, who temporarily took over in July after the previous chief executive Simon Price left after 10 years in charge. Johnstone, who joined the group in 2008, will work from its office in Orlando, Florida. The UK listed company does the bulk of its aircraft services business in the US.

Key stats
Market capitalisation£2,036m
No. of shares out690m
No. of shares floating687m
No. of common shareholdersnot stated
No. of employees21829
Trading volume (10 day avg.)2m
Profit before tax£130m
Earnings per share0.29p
Cashflow per share7.75p
Cash per share111.45p

Numis downgrades Balfour Beatty on M25 sale

Numis has reduced its rating for Balfour Beatty (BBY) after the infrastructure group announced the second tranche of sale of its M25 stake on 29 December.

Analyst Howard Seymour lowered his recommendation from ‘buy’ to ‘add’ with a target price of 350p on the stock after it sold the remaining 12.5% of its stake in Connect Plus, an M25 public-private partnership equity investment, to the same buyers of its original 12.5% stake.

‘Balfour Beatty has announced the second tranche of sale of its M25 stake in line with the statement issued with the original disposal,’ said Seymour.

‘We adjust 2017 profit before tax up by 23% to take account of this disposal. We continue to believe that this disposal will be used toward gross debt removal which both differentiates Balfour from peers going forward and also potentially paves the way for shareholder returns progressively as services businesses normalise and investments continues to deliver outstanding performance.’

Balfour shares edged slightly higher to close at 297.7p.

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  • J Sainsbury PLC (SBRY.L)
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  • BBA Aviation PLC (BBA.L)
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  • Balfour Beatty PLC (BALF.L)
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