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The Expert View: Sainsbury’s, Taylor Wimpey and Tullow Oil

Our daily roundup of analyst commentary on shares, also including Ted Baker and Superdry.

by Michelle McGagh on Jan 11, 2018 at 05:00

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Key stats
Market capitalisation£5,559m
No. of shares out2,190m
No. of shares floating2,132m
No. of common shareholdersnot stated
No. of employees51900
Trading volume (10 day avg.)8m
Turnover£26,224m
Profit before tax£1,348m
Earnings per share16.54p
Cashflow per share44.08p
Cash per share54.06p

Shore Capital has its eye on the prize at Sainsbury’s

The prize at Sainsbury’s (SBRY) will be increasing productivity as the supermarket integrates its acquisition of Argos, says Shore Capital.

Analyst Clive Black retained his ‘buy’ recommendation on the stock after a post-Christmas update that showed an increase in like-for-like sales of 1.1%, ahead of consensus. The shares rose 1.6% to 252.3p yesterday on the news.

‘Following our last engagement with chief executive Mike Coupe and chief financial officer Kevin O’Bryne in November, we came away impressed and pleased with the grown up, balanced, and measured manner in which they approached the running of their business,’ he said.

‘The prize of us with respect to Sainsbury’s remains a focus upon better utilising its asset base, being more productive, harnessing the planned synergies from the Argos acquisition and so cash generation. With this further stepping stone in Argon integration, and sound group-wide trading, we are pleased to see the broad plan being on-track.’

Key stats
Market capitalisation£6,562m
No. of shares out3,275m
No. of shares floating3,248m
No. of common shareholdersnot stated
No. of employees4673
Trading volume (10 day avg.)8m
Turnover£3,676m
Profit before tax£767m
Earnings per share17.95p
Cashflow per share18.05p
Cash per share13.77p

Numis downgrades Taylor Wimpey

Numis has downgraded housebuilder Taylor Wimpey (TW) on the back of ‘slightly lower’ margins that means there is more value in the mid-cap housebuilders.

Analyst Chris Millington downgraded his recommendation from ‘add’ to ‘hold’ with a target price of 221p on the shares, which will 4.3% to 200p yesterday.

‘Taylor Wimpey’s update shows that demand conditions for new build housing remain robust, but to reflect a slightly lower margin than our forecasts we are reducing 2017 estimates by c.1% and keep 2018 unchanged,’ he said.

‘Taylor Wimpey remains attractive from a yield perspective, but we see superior value and growth from the mid-cap housebuilders.’

He added that the downgrade reflected recent share price strength and ‘the slight fall in the order book and the reduction to 2017 estimates’.

Key stats
Market capitalisation£2,015m
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-88m USD
Earnings per share-1.15 USD
Cashflow per share-0.75 USD
Cash per share0.23 USD

Tullow Oil back from the dead, says Hargreaves

Tullow Oil (TLW) has turned a corner after its ‘near death experience’, according to Hargreaves Lansdown.

The company reported $500 million (£370 million) of free cashflow in 2017 following increased production and costs savings, ahead of previous expectations. The shares rose 1.8p to 223.1p yesterday on the news.

‘After the near death experience of early 2016, Tullow looks like it’s turned a corner,’ said analyst Nicholas Hyett.

‘Falling debt and new borrowing facilities have given the group extra breathing space, while increasing production and a healthier oil price environment means more money is coming through the door.’

He added the group had kept a ‘tight grip’ on spending and improved conditions, allowing it to renew its focus on exploration and development, an ‘area where the group has an excellent track record, and recent progress in East Africa bodes well’.

Key stats
Market capitalisation£1,363m
No. of shares out44m
No. of shares floating28m
No. of common shareholdersnot stated
No. of employees3166
Trading volume (10 day avg.)m
Turnover£531m
Profit before tax£88m
Earnings per share104.53p
Cashflow per share151.59p
Cash per share48.45p

Jefferies sees ‘good value’ at Ted Baker

Moderating headwinds in the US will benefit fashion retailer Ted Baker (TED) this year and next, says Jefferies.

Analyst Niraj Amin retained his ‘buy’ recommendation and target price of £30.00 on the stock after a post-Christmas trading update ‘confirmed the merits of strong retail sales growth and promotional discipline in a highly competitive market’.

Retail sales were up 10.5% in the eight weeks to 6 January, which Amin said was ‘impressive, in light of UK high street retail peers so far reporting like-for-like sales of c.1% to c.7%’.

The shares jumped 7.6% to £30.50 yesterday on the news.

‘With US headwinds moderating, we believe the outlook for 2018/19 is promising for Ted Baker,’ he said. ‘With the shares trading on 20.1x 2018 earnings, we see good value.’

Key stats
Market capitalisation£m
No. of shares out82m
No. of shares floating51m
No. of common shareholdersnot stated
No. of employees3143
Trading volume (10 day avg.)m
Turnover£752m
Profit before tax£125m
Earnings per share80.73p
Cashflow per share125.38p
Cash per share83.09p

Hold’ onto Superdry for growth, says Liberum

First-half trading at fashion retailer Superdry (SDRY), which changed its corporate name from Supergroup earlier this week, bodes well for continued double-digit top line growth, says Liberum.

Analyst Adam Tomlinson retained his ‘hold’ recommendation and increased the target price from £17.50 to £21.00 after a first-half update showed underlying profit before tax was up 20.5% to £23.5 million. Reported profits were 28% lower at £9.1 million, however, after a £15.9 million hit from its foreign exchange hedging strategy, sending the shares 7.6% lower to £18.78 yesterday.

‘The trends are consistent with wider sector reporting, with e-commerce outperforming and store-only like-for-likes remaining in negative territory,’ said Tomlinson.

‘This shape continues to bode well for the group’s strategy of delivering continued double-digit top line growth, driven by more capital light, higher margin growth channels.’

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  • J Sainsbury PLC (SBRY.L)
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  • Taylor Wimpey PLC (TW.L)
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  • Tullow Oil PLC (TLW.L)
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  • Ted Baker PLC (TED.L)
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  • SuperGroup PLC (SGP.L)
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