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The Expert View: St James’s Place, Domino’s and BAE

Our daily roundup of analyst commentary on shares, also including Man Group and Focusrite.

by Michelle McGagh on Apr 25, 2018 at 05:00

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Key stats
Market capitalisation£5,947m
No. of shares out529m
No. of shares floating493m
No. of common shareholdersnot stated
No. of employees1735
Trading volume (10 day avg.)2m
Profit before tax£351m
Earnings per share27.37p
Cashflow per share28.93p
Cash per share1,376.09p

SJP increasingly reasonably priced, says Numis.

Investors avoiding UK domestics have steered clear of St James’s Place (SJP) recently but Numis believes there is robust demand at the wealth manager and people still need to save.

Analyst David McCann retained his ‘buy’ recommendation and target price of £15.50 on the shares after first quarter results that showed funds under management at £89.9 billion, slightly better than he had forecasted. The shares fell 2.1% to £11.23 yesterday.

He said the stock offered ‘good growth at an increasingly reasonable price’ after share price underperformance due to the stock’s status as ‘one of the largest listed UK domestic pure plays, which seems to be an area that some investors are actively avoiding’.

‘While SJP does indeed source most of its customer base from the UK, evidently these figures continue to suggest that there remains robust demand for its services: regardless of Brexit and other possible concerns, people ultimately still need to save into their pensions and for other future financial needs,’ said McCann.

Key stats
Market capitalisation£1,681m
No. of shares out481m
No. of shares floating476m
No. of common shareholdersnot stated
No. of employees1749
Trading volume (10 day avg.)2m
Profit before tax£89m
Earnings per share13.65p
Cashflow per share16.37p
Cash per share6.14p

Liberum can’t shake Domino’s concerns

Liberum continues to be concerned about takeaway pizza chain Domino’s (DOM) due to rising costs, rising debt, and declining franchises.

Analyst Wayne Brown retained his ‘sell’ recommendation and reduced the target price from 280p to 250p after full-year 2017 results.

‘There is a low visibility of UK store openings as store splits appear very painful to franchisee profits and we suspect a material slowdown in openings,’ he said.

‘While current like-for-likes are likely to be decent, the second half of the year has tough comparisons and declining franchisee profitability due to rising costs is a structural concern. Rising debt, mergers and acquisitions, and buybacks signal a shift in strategy where no long-term targets have been given.’

At the time of writing the shares were trading flat at 349p.

Key stats
Market capitalisation£19,712m
No. of shares out3,189m
No. of shares floating3,174m
No. of common shareholdersnot stated
No. of employees83200
Trading volume (10 day avg.)7m
Profit before tax£2,097m
Earnings per share26.71p
Cashflow per share38.44p
Cash per share105.47p

Berenberg upgrades BAE on outperformance prospects

Berenberg has upgraded defence company BAE Systems (BAES), arguing the discount the shares trade at is no longer warranted given an improved outlook.

Analyst Andrew Gollan upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 600p to 700p. The shares rose 2.1% to 618p yesterday.

He said the shares have often traded at a discount and this has been exacerbated in recent years due to ‘anaemic earnings growth, negative sentiment around its core Eurofighter programme and a weak UK defence outlook’.

‘BAE’s growth outlook is now much improved and the defence market remains supportive, factors that are not reflected in the current valuation,’ said Gollan.

‘We expect the shares to outperform over the next year driven by a higher rating on this stronger growth profile.’

Key stats
Market capitalisation£2,984m
No. of shares out1,616m
No. of shares floating1,563m
No. of common shareholdersnot stated
No. of employees1313
Trading volume (10 day avg.)7m
Turnover766m USD
Profit before tax253m USD
Earnings per share0.14 USD
Cashflow per share0.18 USD
Cash per share0.16 USD

Man Group undervalued, says Shore Capital

After attending a ‘technology-focused event’ at Man Group (EMG), Shore Capital believes that the asset manager is ‘undervalued’.

Analyst Paul McGinnis retained his ‘buy’ recommendation on the shares, which fell 0.8% to 184.5p yesterday.

At the event, Man Group set out how it was using technology to differentiate its business model, find uncorrelated returns, and even recruit differently.

‘We continue to see Man’s business model as undervalued, trading at a sector discount on a normalised level of performance fees,’ said McGinnis.

He added that the group’s first quarter trading update reported ‘strong net inflows of $4.8 billion’ and noted that European long-short strategies were performing particularly well.

Key stats
Market capitalisation£256m
No. of shares out58m
No. of shares floating30m
No. of common shareholdersnot stated
No. of employees183
Trading volume (10 day avg.)m
Profit before tax£13m
Earnings per share14.80p
Cashflow per share21.10p
Cash per share24.41p

Focusrite is in tune, says AJ Bell

Investors should not overlook audio equipment supplier Focusrite (TUNE), which AJ Bell said was a ‘bright spot’ in the UK market.

Analyst Russ Mould noted half-year results showing a 26.8% rise in pre-tax profit, a 33% increase in the dividend and a more-than-doubling of net cash at the business, founded by former Led Zeppelin sound engineer Phil Dudderidge.

‘These levels of growth would make your typical large-cap boss green with envy,’ he said. ‘Its performance isn’t a one-off as Focusrite has delivered growth in all key metrics ever since it joined the stock market in 2014.

‘For all the doom and gloom surrounding global stock markets this year, it is worth remembering that there will always be some bright spots.’

Mould added that investors should not overlook small-cap stocks as the ‘smaller companies universe is often home to some very impressive businesses’.

The shares jumped 6.3% to 436p yesterday.

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Look up the shares

  • BAE Systems PLC (BAES.L)
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  • Domino's Pizza Group PLC (DOM.L)
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  • Focusrite PLC (TUNE.L)
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  • Man Group PLC (EMG.L)
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  • St. James's Place PLC (SJP.L)
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