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The Expert View: Standard Chartered, Rolls-Royce and Imperial

Our daily roundup of analyst commentary on shares, also including Tate & Lyle and Acal.

by Sam Antrobus on Feb 15, 2016 at 05:00

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Key stats
Market capitalisation£13,672m
No. of shares out3,278m
No. of shares floating3,267m
No. of common shareholdersnot stated
No. of employees90940
Trading volume (10 day avg.)12m
Turnover11,733m USD
Profit before tax1,735m USD
Earnings per share0.67 USD
Cashflow per share0.86 USD
Cash per share25.87 USD

*Correct as at 12 Feb 2016

Standard Chartered – too cheap to turn down?

Investec believes that while Standard Chartered (STAN) faces a difficult future, the current share price presents an opportunity that is too good to turn down.

Analyst Ian Gordon upgraded his recommendation from ‘hold’ to ‘buy', with a target price of 460p on the shares, which rose 8.2% to 418.2p on Friday.

‘Given the way 2016 has played out so far, we think it is little surprise that Standard Chartered has been [almost] the worst performing UK bank year-to-date,’ he said.

‘Aside from its disproportionate [$43.2 billion] commodities-related exposure, with adverse implications for revenues and impairments, the blow-out in credit default swap spreads and yields for additional tier one securities has implications for its intended $4 billion of further additional tier one issuance.

‘We believe that Standard Chartered’s path back to “normalised” returns remains long and deeply uncertain,’ he said, but argued that with the bank trading at 0.4% book value, its lowest level this century, now was the time to ‘buy’.

Key stats
Market capitalisation£11,119m
No. of shares out1,839m
No. of shares floating1,824m
No. of common shareholdersnot stated
No. of employees50600
Trading volume (10 day avg.)8m
Turnover£13,736m
Profit before tax£-73m
Earnings per share-3.90p
Cashflow per share35.01p
Cash per share150.81p

*Correct as at 12 Feb 2016

Rolls-Royce dividend cut could mark a turning point

Rolls-Royce (RR) has implemented a painful 50% dividend cut, but Jefferies believes the aircraft engine manufacturer has ‘stopped the rot’.

Analyst Sandy Morris offered a ‘buy’ recommendation, with a target price of 700p on the shares, which jumped 17.2% to 621.1p yesterday amid relief the company was not forced into a sixth profit warning in two years.

‘The 50% cut in the final dividend is a painful step, but Rolls-Royce makes a fairly clear commitment to a progressive dividend policy, in our view,’ he said.

‘If sentiment stabilises and a more rounded approach to gauging the Rolls-Royce equity story is adopted, we believe it will bring cash flows into focus. Rolls-Royce has stated that cash flows are the best way of valuing civil aerospace – and we agree.

‘The story is simple – rapid growth in the installed engine fleet generates corresponding strong growth in aftermarket revenues, but expenditure on engine overhauls initially grows far more slowly.’

Key stats
Market capitalisation£34,257m
No. of shares out959m
No. of shares floating956m
No. of common shareholdersnot stated
No. of employees36400
Trading volume (10 day avg.)2m
Turnover£25,289m
Profit before tax£1,691m
Earnings per share176.90p
Cashflow per share270.43p
Cash per share213.36p

*Correct as at 12 Feb 2016

Imperial Brands’ overhaul spells optimism moving forward

Imperial Brands’ (IMB) decision to drop ‘tobacco’ from its name spearheads the wider positive change that the company is currently implementing, according to Deutsche Bank.

Analyst Gerry Gallagher maintained a ‘buy’ recommendation, with a target price of £41.10 on the shares, which fell 0.8% to £35.60 on Friday.

‘The extent to which CEO [Alison] Cooper has and will likely continue to transform Imperial internally and away from external eyes should not be underestimated. The journey from a cost-focused “M&A house that happens to sell cigarettes” to a business focused on top-line sustainability with positive valuation implications has, at times, been very difficult,’ he says.

‘Nevertheless, CEO Cooper retains the transformational goals with the name change the most public manifestation: as CEO Cooper once noted, until recently Imperial saw itself as a tobacco manufacturer with notions of consumers and brands secondary to costs.

‘That has changed; the potential upside from a 14.6% price-to-earnings ratio should not be underestimated in our view.’

Key stats
Market capitalisation£2,497m
No. of shares out466m
No. of shares floating459m
No. of common shareholdersnot stated
No. of employees4759
Trading volume (10 day avg.)2m
Turnover£2,356m
Profit before tax£4m
Earnings per share0.86p
Cashflow per share24.15p
Cash per share45.70p

*Correct as at 12 Feb 2016

Liberum: Tate & Lyle ‘turning the corner’

Liberum analyst Robert Waldschmidt feels the recent sell-off in Tate & Lyle (TATE) has been unwarranted and believes the company is back on track, despite softer demand in the Americas.

He maintained a ‘buy’ recommendation, with a target price of 700p on the shares, which fell 0.8% to 535.5p on Friday.

‘In our view, Tate & Lyle is turning the corner on its recent woes and is on track to execute a sustained recovery,’ he said.

‘We expect 2016 will prove an inflection point and forecast an 11% rebound in 2017 pre-tax profits as one-off items drop out and new speciality food ingredients plant capacity comes online.

‘In our view, Tate & Lyle’s historical difficulties are grounded in execution and strategic ambition, areas that management is addressing.’

Key stats
Market capitalisation£160m
No. of shares out64m
No. of shares floating58m
No. of common shareholdersnot stated
No. of employees3329
Trading volume (10 day avg.)m
Turnover£271m
Profit before tax£3m
Earnings per share4.76p
Cashflow per share12.47p
Cash per share43.30p

*Correct as at 12 Feb 2016

Acal remain strong on all fronts

Strong acquisition performance is helping customised electronics supplier Acal (ACL) ride out global macroeconomic concerns.

Peel Hunt analyst Henry Carver upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 315p on the shares, which fell 1% to 247p on Friday.

‘Acal’s Q3 interim management statement is reassuring both on underlying trading and on acquisitions. The small acquisition of Piltron in Toronto provides a foothold in the US, from which Acal can continue to expand into North America,’ he said.

‘The interim management statement confirms trading in line with expectations, with overall trends largely unchanged from those seen at the time of the Interims in November. This implies underlying growth at 2%.

‘The general macro-environment backdrop is uncertain but Acal is showing good levels of resilience… we expect more to come.’

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Look up the shares

  • Standard Chartered PLC (STAN.L)
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  • Rolls-Royce Holdings PLC (RR.L)
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  • Imperial Brands PLC (IMB.L)
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  • Acal PLC (ACL.L)
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  • Tate & Lyle PLC (TATE.L)
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