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The Expert View: Sirius Real Estate, Micro Focus and FirstGroup

Our daily roundup of analyst commentary on shares, also including Big Yellow and Kainos.

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

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Peel Hunt backs Sirius Real Estate after interims

Real estate investment trust (Reit) Sirius Real Estate (SRE) has posted ‘strong numbers’ in its interim results and investors have nothing to worry about from a ‘temporary cash drag’, says Peel Hunt.

Analyst Matthew Saperia retained his ‘buy’ recommendation and increased his target price from 60p to 68p after a 7.8% rise in net asset value per share in the first half and a 12% hike to the dividend.

‘Sirius has reported another set of strong numbers, with an accounting return over the period of 10.4% and shareholders are rewarded with a 12% increase in the interim dividend to 1.56 euro cents per share,’ he said.

‘Good progress has been made on recycling sales proceeds, with €166.7 million of acquisitions now complete, notarised, or in exclusivity.’

He added that the ‘temporary cash drag from timing differences in capital recycling is manageable’ and the potential earnings and value accretion from recent acquisitions were an ‘exciting prospect’.

‘Shares deserve their c.3% premium to our revised March 2019 net asset value per share forecast of 69.1 cents given 4.6% prospective yield,’ added Saperia.

The shares edged a quarter of a penny lower to 64p yesterday.

Key stats
Market capitalisation£3,810m
No. of shares out149m
No. of shares floating148m
No. of common shareholdersnot stated
No. of employees1191
Trading volume (10 day avg.)m
Turnover289m USD
Profit before tax130m USD
Earnings per share0.47 USD
Cashflow per share0.61 USD
Cash per share0.14 USD

Deutsche Bank downgrades Micro Focus on ‘limited upside’

Deutsche Bank has downgraded mainframe computer specialist Micro Focus (MCRO) as the upside to the share price becomes more limited.

Analyst Steve Goulden downgraded his recommendation from ‘buy’ to ‘hold’ with a target price of £28. The shares fell 3.1% to £25.73 yesterday on news of the downgrade.

‘With limited upside potential to our share price target, we believe the risk/reward is now rather more balanced and downgrade to “hold”,’ he said. ‘We forecast 7% single digit earnings per share growth post full-year 2020 along with a c.4% dividend yield.’

He added that the 15x full year 2019 earnings per share rating was ‘roughly fair’ and ‘offset by the potential for further execution risk, lack of clarity around further mergers and acquisitions and a lack of meaningful organic growth potential’.

Key stats
Market capitalisation£1,243m
No. of shares out1,209m
No. of shares floating1,183m
No. of common shareholdersnot stated
No. of employees100891
Trading volume (10 day avg.)3m
Profit before tax£721m
Earnings per share9.23p
Cashflow per share43.51p
Cash per share33.20p

FirstGroup: short-term price opportunity but long-term concerns

Weakness in FirstGroup’s (FGP) shares make them more attractive but Jefferies warns there are still ‘divisional dynamics’ that are cause for concern.

Analyst Joe Spooner retained his ‘hold’ recommendation and reduced his target price from 155p to 120p after first-half earnings were flat year-on-year. The shares were flat at 103.8p yesterday.

‘Post weakness, FirstGroup shares may see some short-term valuation upside, but divisional dynamics still flag reasons for concern,’ he said.

‘Student’s shrink-to-grow strategy that has driven the group profit and loss since 2014 appears to be converging on conclusion, group dependence on rail over first half of 2017 is uncomfortable to us and the first-half pick-up in free cashflow appears to have been less remarkable than the headline.’

Spooner added that the second half will be ‘more key than usual’ as more depends on its North American Greyhound bus business than usual. He forecasted ‘cost efficiencies to accelerate in the second half at UK bus and overall group progress steered for full-year 2018’.

Key stats
Market capitalisation£1,301m
No. of shares out158m
No. of shares floating144m
No. of common shareholdersnot stated
No. of employees361
Trading volume (10 day avg.)1m
Profit before tax£66m
Earnings per share62.77p
Cashflow per share63.23p
Cash per share4.37p

‘Fantastic’ Big Yellow trading at a ‘fair price’, says Liberum

Storage facility Big Yellow (BYG) is a ‘wonderful company at a fair price’, according to Liberum.

Analyst David Brockton retained his ‘buy’ recommendation and increased his target price from 800p to 860p. The shares were up 4p at 838p yesterday.

‘A combination of the best real estate in UK self-storage, the most recognised brand, established operational capability and a strategy of prioritising occupancy over rates is driving strong returns, with no discernible sign of weakness from weaker housing activity,’ he said.

Brockton added that rising demand for storage and the high entry barriers alongside ‘superior cash returns’ make Big Yellow attractive.

‘We upgrade earnings by 6% and our target price to 860p,’ he said.

Key stats
Market capitalisation£m
No. of shares out118m
No. of shares floating56m
No. of common shareholdersnot stated
No. of employees884
Trading volume (10 day avg.)m
Profit before tax£14m
Earnings per share8.68p
Cashflow per share9.43p
Cash per share20.05p

Shore expects excitement to pick up at Kainos

Digital solutions provide Kainos (KNOS) has had a subdued first half but Shore Capital says there is opportunity in the second half of the year.

Analyst Ben McSkelly retained his ‘buy’ recommendation on the stock after the company reported headline revenues grew 2% to £41.4 million in the six months to 30 September versus an expected £44 million.

McSkelly said the results revealed ‘not a rip roaring first half’ but ‘other growth metrics in the business hint at possibilities for the second half’.

‘Orders grew by 94% to £63.4 million in the period, with the order back log rising 43% to £97.1 million,’ he said.

The company added 16 new clients in ‘workday implementation activities’ against five new clients the previous year and more clients are expected to join in the second half.

The shares rose 4.2% to 300.2p yesterday.

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  • Micro Focus International PLC (MCRO.L)
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  • FirstGroup PLC (FGP.L)
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  • Big Yellow Group PLC (BYG.L)
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  • Kainos Group PLC (KNOS.L)
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