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The Expert View: Sky, Galliford Try and WPP

Our daily roundup of analyst commentary on shares, also including Countrywide and Rentokil.

by Michelle McGagh on Feb 15, 2018 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£18,879m
No. of shares out1,719m
No. of shares floating980m
No. of common shareholdersnot stated
No. of employees28123
Trading volume (10 day avg.)5m
Profit before tax£2,136m
Earnings per share39.97p
Cashflow per share95.63p
Cash per share145.43p

Premier League wins boost Sky’s attractiveness, says Hargreaves

Sky (SKY) may be able to up the price Rupert Murdoch’s Fox group will have to pay for it after winning four new Premier League rights packages, says Hargreaves Lansdown.

Sky has paid £3.6 billion for four packages representing 128 games per season over the next three years, down from the £4.1 billion it paid in 2015 for 126 games a year. Shares in Sky rose 2% to £10.82 on the news.

BT has paid £885 million for another package comprising 32 games per season over three years, representing a higher per-game cost than the £960 million it paid for 42 matches per season in 2015.

Analyst George Salmon said Sky was ‘the big winner’, securing more games at a lower cost, which makes the company an even more attractive prospect.

‘All this means Sky looks much healthier than when Rupert Murdoch’s Fox first bid for the business,’ he said. ‘In early trading the shares touched £10.95, 20p ahead of the price Fox has agreed to pay. This tells us Murdoch might need to come back with an improved offer.’

Key stats
Market capitalisation£676m
No. of shares out83m
No. of shares floating81m
No. of common shareholdersnot stated
No. of employees5506
Trading volume (10 day avg.)m
Profit before tax£152m
Earnings per share58.75p
Cashflow per share66.71p
Cash per share923.90p

Carillion collapse hits Galliford Try

Carillion’s collapse has had a negative effect on Galliford Try (GFRD) and it is being forced to raise £150 million and cut its dividend but Peel Hunt said the housebuilder was still reporting ‘robust’ margins.

Analyst Clyde Lewis retained his ‘buy’ recommendation on the stock and target price of £16.20 on the stock after H1 results shows the group ‘is making good progress’. The shares tumbled 18% to 810p yesterday.

‘The group is raising £150 million new equity (fully underwritten) to offset the negative impact on the group’s balance sheet from the Carillion liquidation on the road joint venture in Aberdeen,’ he said.

‘The group is also bringing forward its move to a two times dividend cover, meaning dividend estimates drop to 84p for this year and 94p next.’

Lewis said current trading had been ‘robust with further margin gains’ but ‘the shares have been one of the weaker performers among the housebuilders year-to-date with a 23% decline led principally by the impact of Carillion’s collapse’.

Key stats
Market capitalisation£17,585m
No. of shares out1,270m
No. of shares floating1,226m
No. of common shareholdersnot stated
No. of employees198000
Trading volume (10 day avg.)6m
Profit before tax£2,373m
Earnings per share108.00p
Cashflow per share148.87p
Cash per share190.26p

Buying opportunity at WPP, says Liberum

Advertising giant WPP (WPP) has been one of two top performing stocks in the market correction, proving concerns about agencies have been ‘overdone’, says Liberum.

Analyst Ian Whittaker retained his ‘buy’ recommendation and target price of £18.15 on the shares, which rose 3.9% to £13.87 yesterday.

‘WPP has been one of the two best performing FTSE 100 stocks in the recent corrections – the other Just Eat – driven by positive comments from (other advertising agencies) Publicis and Dentsu, suggesting that 2018 will be a better year than 2017,’ he said.

Whittaker believes the positive comments ‘add weight to arguments that the structural concerns on the agencies have been overdone’.

‘If this is correct, then the multiple of 11x for WPP looks too low and represents a buying opportunity,’ he said.

Key stats
Market capitalisation£185m
No. of shares out238m
No. of shares floating232m
No. of common shareholdersnot stated
No. of employees10909
Trading volume (10 day avg.)1m
Profit before tax£116m
Earnings per share8.03p
Cashflow per share23.26p
Cash per share20.95p

Countrywide down but not out, says Jefferies

Shares in estate agent Countrywide (CWD) have lost a third of their value this year but Jefferies says investors risk throwing the baby out with the bathwater.

Analyst Anthony Codling retained his ‘hold’ recommendation and target price of 125p on the shares, which fell 5.5% to 78.4p yesterday.

‘Countrywide’s shares have lost around one-third of their value since the start of 2018,’ he said. ‘The group is facing both internal and external challenges and we are currently waiting for a strategy update following management changes.’

Codling added that the shares currently traded on a 2018 price/earnings ratio of 5.9x and ‘remains the largest diversified estate agent in the UK’ so ‘at these levels, we believe there is a risk of throwing the baby out with the bathwater’.

Key stats
Market capitalisation£5,208m
No. of shares out1,837m
No. of shares floating1,825m
No. of common shareholdersnot stated
No. of employees32150
Trading volume (10 day avg.)6m
Profit before tax£493m
Earnings per share9.11p
Cashflow per share22.36p
Cash per share9.28p

Rentokil pull back a buying opportunity, says Deutsche Bank

Investors should use the recent pull back in shares in pest control company Rentokil (RTO) as a buying opportunity, says Deutsche Bank.

Analyst Sylvia Barker reiterated her ‘buy’ recommendation but reduced the target price from 340p to 335p. The shares rose 2p to 284p yesterday.

She said Rentokil remained one of her preferred stocks in the sector and ‘we believe the company can generate double-digit earnings per share growth’. Barker noted the ‘underleveraged’ balance sheet which she expects the management to use as ‘firepower for further deals in North American pest control and elsewhere’.

‘We think that the recent share price pull back offers a reasonable entry point into a cash compounder with solid organic growth,’ said Barker.

‘We expect to see some small foreign exchange-related downgrades for 2018, which might be offset by acquisitions depending on the scale of mergers and acqusitions announced with the results.’

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Look up the shares

  • Sky PLC (SKYB.L)
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  • Galliford Try PLC (GFRD.L)
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  • Countrywide PLC (CWD.L)
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  • Rentokil Initial PLC (RTO.L)
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