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The Expert View: Sainsbury’s, DFS and Mitie

Our daily roundup of analyst commentary on shares, also including Hilton Food Group and Clinigen.

by Michelle McGagh on Mar 29, 2018 at 05:00

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Key stats
Market capitalisation£5,133m
No. of shares out2,190m
No. of shares floating2,134m
No. of common shareholdersnot stated
No. of employees51900
Trading volume (10 day avg.)10m
Turnover£26,224m
Profit before tax£1,283m
Earnings per share16.54p
Cashflow per share44.08p
Cash per share54.06p

Sainsbury’s medium term outlook positive, says Jefferies

A meeting with Sainsbury’s (SBRY) has convinced Jefferies that the outlook for the core food business is strong for the supermarket and for its UK peers.

Analyst James Grzinic retained his ‘hold’ recommendation and target price of 270p on the stock, which rose 2.3% to 234.5p yesterday.

‘An afternoon with Sainsbury’s…allowed the group to showcase recent progress and future plans, as well as comfort with consensus estimates for both 2017/18 and 2018/19,’ he said.

‘The latter likely implies margin build in the core food business, positive for both Sainsbury’s and UK peers.’

He added that the supermarket was trying to differentiate itself by supporting new brands ‘at a time when larger suppliers are struggling to maintain brand equity’, and a more flexible approach to space.

Key stats
Market capitalisation£393m
No. of shares out212m
No. of shares floating206m
No. of common shareholdersnot stated
No. of employees4354
Trading volume (10 day avg.)m
Turnover£763m
Profit before tax£82m
Earnings per share18.61p
Cashflow per share28.92p
Cash per share28.84p

Peel Hunt: DFS is one to watch

An earnings drop of 9% isn't normally good news, but it is for furniture retailer DFS (DFSD) given expectations ahead of yesterday's results, says Peel Hunt.

Analyst Jonathan Pritchard retained his ‘hold’ recommendation and target price of 200p on the shares, which jumped 8.4% to 184.2p yesterday. While he said it ‘isn’t usually the stuff of fanfares…the interims were pleasingly reassuring’.

‘Current trading is reported to be a touch better in sales terms and the comparative now gets much easier both for like-for-like and gross margins,’ he said.

‘The multiple does reflect a lot of bad news ahead, but with the sector completely out of favour, some of these market leaders that will come out of the downturn stronger are starting to appeal to us. A 'hold' for now though.’

Key stats
Market capitalisation£572m
No. of shares out366m
No. of shares floating336m
No. of common shareholdersnot stated
No. of employees52798
Trading volume (10 day avg.)3m
Turnover£2,126m
Profit before tax£31m
Earnings per share-14.70p
Cashflow per share-3.68p
Cash per share35.71p

Mitie at attractive P/E, says Liberum

Outsourcing group Mitie (MTO) is trading on an ‘attractive’ price/earnings ratio of 7.5x despite earnings downgrade, says Liberum.

Analyst Joe Brent retained his ‘buy’ recommendation and target price of 240p but reduced full-year 2018 and 2019 earnings per share forecasts by 3% and 8%.

Brent also noted that Mitie’s cost-reduction programme ‘Project Helix’ would cost £10 million more but would save £5 million more in 2020.

‘Average debt is lower in full year 2018 and cashflows should start to improve,’ he said. ‘There are also businesses to sell.’He added that peer group valuations were higher and ‘a recovered price/earnings of 7.5x is attractive, and our target price of 240p gives 54% upside’.

The shares were trading at 156.4p yesterday.

Key stats
Market capitalisation£652m
No. of shares out81m
No. of shares floating60m
No. of common shareholdersnot stated
No. of employees2948
Trading volume (10 day avg.)m
Turnover£1,235m
Profit before tax£51m
Earnings per share33.22p
Cashflow per share62.49p
Cash per share80.63p

Hilton is ‘transformed’, says Shore Capital

Hilton Food Group (HFG) has had a ‘transformative’ 2017 and it is now set up for strategic opportunities, says Shore Capital.

Analyst Darren Shirley reiterated his ‘buy’ recommendation on the stock after 2017 preliminary results that showed a ‘modest beat to expectations, with strong profit growth, and outstanding cash generation’.

‘Looking into 2018, management state trading has been in line with expectations and despite exchange movements being less favourable we expect to leave our profit expectations unchanged at this still early stage of the year,’ he said.

‘We remain positive on Hilton Food Group, reflecting on strategic growth opportunities the group has established over the past 12-15 months, noting new joint ventures in Portugal and New Zealand.’

The shares rose 3.9% to 800p yesterday.

Key stats
Market capitalisation£1,102m
No. of shares out122m
No. of shares floating110m
No. of common shareholdersnot stated
No. of employees498
Trading volume (10 day avg.)m
Turnover£302m
Profit before tax£64m
Earnings per share3.25p
Cashflow per share19.69p
Cash per share24.14p

Berenberg sticks with Clingen ‘buy’ despite disappointment

Half-year results from pharmaceutical company Clinigen (CLINC) disappointed Berenberg but it has a more positive longer term outlook.

Analyst Charles Weston reiterated his ‘buy’ recommendation and downgraded the target price from £12.20 to £11.60 after first-half results 'failed to provide the confidence we were seeking that the global access business would accelerate’.

‘However, the strong momentum in the commercial medicines division and our expectation for a rebound in managed access in full year 2019 should lead to mid-teens organic earnings growth for full year 2018/19, with upside from M&A supported by continued healthy operating cash conversion.’

Weston said the prospects for Clinigen were not reflected in the 17x price/earnings ratio and ‘although we doubt that our thesis will be proven in the next six to nine months, we are more positive on a nine- to 18-month basis, and therefore reiterate our 'buy' rating’.

The shares rose 5p to 900p yesterday.

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  • Clinigen Group PLC (CLINC.L)
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  • DFS Furniture PLC (DFSD.L)
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  • Hilton Food Group PLC (HFG.L)
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  • J Sainsbury PLC (SBRY.L)
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  • Mitie Group PLC (MTO.L)
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