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The Expert View: SSE, British Land and Merlin

Our daily roundup of analyst commentary on shares, also including Brewin Dolphin and Wincanton.

by Michelle McGagh on May 18, 2017 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£14,705m
No. of shares out1,005m
No. of shares floating999m
No. of common shareholdersnot stated
No. of employees21118
Trading volume (10 day avg.)4m
Turnover£28,781m
Profit before tax£461m
Earnings per share46.01p
Cashflow per share126.28p
Cash per share35.75p

SSE dividend under threat, says Jefferies

Dividend sustainability is under threat at energy provider SSE (SSE) due to regulatory intervention in the UK, says Jefferies.

Analyst Ahmed Farman retained his ‘hold’ recommendation and target price of £14.00 on the stock, which was trading up 0.7%, or 10p, at £14.61 at the time of writing.

‘Full-year 2016/17 reported earnings per share was 125.75p, slightly ahead of the 122-125p range given at the pre-close update. In full-year 2017/18, SSE expects to continue to increase dividend per share by the retail prices index, with a dividend cover to the lower end of the range,’ he said.

‘[The] update suggests to us that SSE is unlikely to be able to maintain its dividend cover in the case of further punitive regulatory intervention in the UK. In such a case, the sustainability of SSE’s dividend will increasingly come into question.’

He added that the company had invested at ‘record levels’ over the past few years ‘in order to stand still from a profit perspective’ and with headwinds such as low power prices, it was becoming tougher to maintain the dividend.

Key stats
Market capitalisation£6,686m
No. of shares out1,030m
No. of shares floating1,023m
No. of common shareholdersnot stated
No. of employees589
Trading volume (10 day avg.)5m
Turnover£544m
Profit before tax£1,345m
Earnings per share123.51p
Cashflow per share125.44p
Cash per share10.96p

Hargreaves Lansdown: British Land ‘uncomfortable’ about the future

British Land (BLND) may have posted positive full-year results but Hargreaves Lansdown says the company is ‘uncomfortable about the future’.

British Land’s full-year underlying profits – rental income minus expenses – rose 7% in 2016/17 to £390 million but the net asset value fell 0.4% to £9.5 billion, or 915p a share.

Although the group increased the dividend 3% and proposed another 3% rise for the coming year the shares were down 2.2%, or 15p, at 659p at the time of writing.

Analyst Nicholas Hyett said the headline numbers were ‘pretty good’ and dividend growth was of most importance to investors.

‘However, British Land is clearly uncomfortable about the future,’ he said.

‘Speculative developments have been reined right back and leverage is falling as the group sells some high profile assets, including a 50% stake in the Cheesegrater. That’s sensible given the group’s disproportionate exposure to the prestige London office space most likely to be hit if Brexit results in a mass exodus of bankers, lawyers and the like. However, it suggests the group feels there could be stormy weather ahead.’

Key stats
Market capitalisation£5,137m
No. of shares out1,016m
No. of shares floating694m
No. of common shareholdersnot stated
No. of employees19489
Trading volume (10 day avg.)2m
Turnover£1,457m
Profit before tax£211m
Earnings per share20.72p
Cashflow per share33.59p
Cash per share21.17p

Merlin is undervalued, says Barclays

Alton Towers owner Merlin Entertainments (MERL) may not look cheap but Barclays believes there is a lot that is being undervalued.

Analyst Vicki Stern reiterated her ‘overweight’ recommendation and target price of 575p on the stock following a roadshow. The shares were trading flat at 502p at the time of writing.

‘One of the questions posed on the last roadshow we hosted with management was: ‘What is the market missing?’. With the stock trading at 22x 2017 price/earnings, one might argue “not much”, but in fact we think there is a lot that is being underestimated/undervalued,’ she said.

While Stern said the stock was ‘unlikely to ever look “cheap” on a one-year price/earnings given its growth characteristics’ there was more potential for the company thanks to an accommodation rollout, which she said was ‘potentially the most under-appreciated piece of the story’.

Key stats
Market capitalisation£924m
No. of shares out283m
No. of shares floating245m
No. of common shareholdersnot stated
No. of employees1743
Trading volume (10 day avg.)1m
Turnover£282m
Profit before tax£39m
Earnings per share13.86p
Cashflow per share18.93p
Cash per share60.72p

Growth strategy proving successful for Brewin Dolphin, says Peel Hunt

Wealth manager Brewin Dolphin (BRW) has posted record growth inflows as it moves towards a growth strategy, which Peel Hunt is predicting to be a success.

Analyst Stuart Duncan retained his ‘add’ recommendation but increased the target price from 320p to 345p after interim results showed profits up 14% to £32.4 million and total net inflows of £600 million.

‘Although overall results were largely as expected, the highlight of the first half has been the organic growth rate of 7.6%, with record gross inflows generated,’ he said.

‘This confirms the change in emphasis towards growth, and the success of the strategy to enhance distribution.’

He added: ‘The stock now trades on a December 2017 enterprise value/ profits multiple of 15.1x, which like the rest of the sector has expanded over recent months – the multiple stood at c.13.5x back in January.’

The shares were trading down 0.8%, or 2p, at 327p at the time of writing.

Key stats
Market capitalisation£364m
No. of shares out124m
No. of shares floating115m
No. of common shareholdersnot stated
No. of employees17500
Trading volume (10 day avg.)m
Turnover£1,147m
Profit before tax£61m
Earnings per share47.36p
Cashflow per share59.85p
Cash per share21.25p

Liberum: positive momentum at Wincanton

Logistics specialist Wincanton (WIN) has posted full-year results slightly ahead of expectations and Liberum believes the positive momentum will continue.

Analyst Gerald Khoo retained his ‘buy’ recommendation and target price of 290p on the stock after the company posted year-on-year profit growth of 18%.

The shares were trading up 4.3%, or 12p, at 286p at the time of writing.

‘Encouraging results, slightly ahead of expectations, supported by contract renewals and new business wins,’ he said.

‘Profit growth rates were flattered by a weak comparative impacted by loss-making Pullman contracts that ended last year, but we believe there was good underlying progress in all areas. We expect more of the same in the new full year, supported by a steady stream of new business wins.’

Khoo added that despite the strong performance the valuation was still ‘attractive’.

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Look up the shares

  • British Land Company PLC (BLND.L)
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  • Brewin Dolphin Holdings PLC (BRW.L)
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  • Merlin Entertainments PLC (MERL.L)
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  • Wincanton PLC (WIN.L)
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  • SSE PLC (SSE.L)
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