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The Expert View: Shell, SSE and Barratt

Our daily roundup of analyst commentary on shares, also including Grainger and Unite.

by Michelle McGagh on Sep 28, 2017 at 05:00

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Key stats
Market capitalisation£140,374m
No. of shares out6,312m
No. of shares floating6,301m
No. of common shareholdersnot stated
No. of employees97000
Trading volume (10 day avg.)4m
Turnover237,577m USD
Profit before tax12,992m USD
Earnings per share2.12 USD
Cashflow per share3.79 USD
Cash per share1.41 USD

Jefferies upbeat on Shell dividends

Jefferies is impressed with the cashflow at Royal Dutch Shell (RDSa) and the recent oil price rally has given shareholders more reason to cheer.

Analyst Jason Gammel retained his ‘buy’ recommendation and target price of £24.70 on the stock, which fell 5.5p to £22.22 yesterday.

‘We believe that Shell has the most resilient cashflow profile in the European integrated oil sector, yet the stock’s dividend yield remains the highest in the peer group,’ he said.

‘We expect that the recent rally in oil prices – even if not fully sustained – should give the market further confidence in Shell’s cash cycle and lead to further yield compression.’

He added that flexible capital spending would mean Shell ‘would be able to fund the full dividends with free cashflow at about $50 a barrel in 2018’.

Key stats
Market capitalisation£13,896m
No. of shares out997m
No. of shares floating992m
No. of common shareholdersnot stated
No. of employees21157
Trading volume (10 day avg.)3m
Profit before tax£1,600m
Earnings per share158.19p
Cashflow per share282.25p
Cash per share140.51p

SSE: impressive dividend but pressure is growing

Energy company SSE (SSE) has an impressive dividend track record but it is coming under pressure from falling customer numbers and political reform, says Hargreaves Lansdown.

A trading update from the group prior to half-year results showed its dividend policy was unchanged but the group does expect a reduction in networks’ half-year operating profits.

Analyst George Salmon said SSE had a ‘remarkable’ dividend history, having increased the payout every year since 1992, adding its current yield of 6.7% was an ‘undeniable attraction’.

‘However, with customer numbers falling and political pressure for an energy market upheaval growing, we feel in order to keep this impressive dividend growth record going in the years to come, the group must start generating higher returns,’ he said.

‘Despite having spent around £10 billion in the last seven years, mainly on renewable energy projects, net operating cashflow hasn’t moved a great deal.’

The shares fell 1.6% to £13.94 yesterday.

Key stats
Market capitalisation£6,070m
No. of shares out1,010m
No. of shares floating978m
No. of common shareholdersnot stated
No. of employees6209
Trading volume (10 day avg.)6m
Profit before tax£616m
Earnings per share60.69p
Cashflow per share61.11p
Cash per share77.87p

Peel Hunt upgrades Barratt

Peel Hunt has upgraded Barratt Developments (BDEV) as the yield on the shares grows to 7.5% amid ‘softness’ in the house building sector.

Analyst Clyde Lewis upgraded his recommendation from ‘hold’ to ‘add’ with a target price of 670p on the shares, which rose 1.2% to 602.2p yesterday. Lewis said full-year results were in-line, with profit before tax 12% up on the previous year at £765 million.

‘Operating margins advanced by 1.4% in the year, but remain c.2.5% behind the sector average, and management is now particularly focused on closing the gap,’ he said.

‘Recent trading has been solid and the strong forward order book provides comfort for management’s guidance of modest volume growth in the current year. With the shares now yielding 7.5% following the recent softness in the sector, we believe this is an appropriate point to up our recommendation.’

Key stats
Market capitalisation£1,066m
No. of shares out417m
No. of shares floating401m
No. of common shareholdersnot stated
No. of employees216
Trading volume (10 day avg.)1m
Profit before tax£75m
Earnings per share17.91p
Cashflow per share18.13p
Cash per share21.76p

Numis: Grainger opportunities not reflected in discount

Residential landlord Grainger (GRI) is outperforming on Numis’ profit targets but caution over the state of the market is tempering analysts’ optimism,.

Analyst Chris Millington retained his ‘buy’ recommendation and target price of 300p on the stock, forecasting full-year profits of £70 million, up from £53.1 million the previous year. The shares fell a penny to 255.6p yesterday.

‘Grainger has outperformed our profit forecast, mainly due to higher profits from sales and also lower operating costs as management initiatives feed through,’ he said.

‘We have increased our profit forecasts for 2017/18 but left our net asset value per share unchanged, reflecting a more cautious forecast of market value movements. In our view, Grainger’s significant opportunity in the private rented sector market is not reflected in its [valuation].’

Key stats
Market capitalisation£1,614m
No. of shares out241m
No. of shares floating239m
No. of common shareholdersnot stated
No. of employees1206
Trading volume (10 day avg.)1m
Profit before tax£224m
Earnings per share93.21p
Cashflow per share96.04p
Cash per share19.23p

Unite benefitting from first mover advantage, says Liberum

Unite (UTG) is benefitting from its established position in student accommodation with opportunities in the pipeline and higher returns, says Liberum.

Analyst Kieran Lee retained his ‘buy’ recommendation and target price of 720p on the stock after a capital markets day which he said ‘reinforced the benefits of the group’s first mover advantage and established scale’. The shares fell 1% to 671p yesterday.

He said the relationships it had with universities were now ‘generating tangible leads in the identification of new acquisitions and developments, with eight opportunities currently being considered not in market forecasts’.

‘The quality of the group’s returns also continues to be improved as greater focus is placed on higher ranked universities and retail price index-linked nominations agreements,’ he said.

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Look up the shares

  • Royal Dutch Shell PLC (RDSa.L)
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  • Barratt Developments PLC (BDEV.L)
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  • Grainger PLC (GRI.L)
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  • Unite Group PLC (UTG.L)
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