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The Expert View: TalkTalk, Berkeley and Rightmove

Our daily roundup of analyst commentary on shares, also including Hollywood Bowl and Polar Capital.

by Michelle McGagh on Dec 12, 2017 at 05:00

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Key stats
Market capitalisation£1,313m
No. of shares out955m
No. of shares floating525m
No. of common shareholdersnot stated
No. of employees2226
Trading volume (10 day avg.)2m
Profit before tax£308m
Earnings per share6.05p
Cashflow per share20.75p
Cash per share5.24p

Jefferies predicts TalkTalk dividend cut

Jefferies is disappointed by the lack of progress at TalkTalk (TALK) and expects a dividend cut next year.

Analyst Jerry Dellis reiterated his ‘underperform’ recommendation and reduced the target price from 125p to 95p. The shares fell 11.2% to 137.2p yesterday.

Dellis downgraded the stock to underperform in February 2015 and he said not much had improved since then.

‘New tariffs are not delivering churn reduction as hoped, diluting earnings/free cashflow growth prospects,’ he said.

‘We remain heavily below consensus and expect TalkTalk to miss earnings guidance.’

He added that bond covenants ‘threaten dividend capacity’ and that a ‘-40% dividend per share cut next year is the minimum requirement’.

Key stats
Market capitalisation£5,567m
No. of shares out135m
No. of shares floating125m
No. of common shareholdersnot stated
No. of employees2443
Trading volume (10 day avg.)1m
Profit before tax£759m
Earnings per share451.44p
Cashflow per share453.39p
Cash per share425.08p

Liberum hikes Berkeley profit estimates

Liberum has increased its profit estimates for the next two years at housebuilder Berkeley (BKGH) after a strong first half and upbeat management guidance.

Analyst Charlie Campbell reiterated his ‘hold’ recommendation and increased the target price from £33.17 to £40.50. The shares edged 7p lower to £41.06 yesterday.

He upgrade his profit before tax estimates for 2018 and 2019 by 7% and 6%, respectively, to ‘reflect improved guidance from management over short term and medium-term profits after a very strong first half’.

Campbell said the higher target price reflected ‘higher estimates and increased confidence as the London market appears to have stabilised and forward indicators remain strong’.

‘Berkeley’s management and assets remain sector leading, but London remains most exposed to macro-economic and political uncertainty,’ he said.

Key stats
Market capitalisation£3,888m
No. of shares out91m
No. of shares floating90m
No. of common shareholdersnot stated
No. of employees469
Trading volume (10 day avg.)1m
Profit before tax£163m
Earnings per share136.41p
Cashflow per share138.11p
Cash per share19.07p

Rightmove not threatened by OnTheMarket listing, says Hargreaves

Property search engine has announced it will be listing on the Alternative Investment Market but Hargreaves Lansdown warned it has a ‘significant’ challenge if it wants to topple incumbent Rightmove (RMV).

The site will seek to raise £50 million. Rightmove shares were flat at £42.55 yesterday.

Analyst George Salmon said OnTheMarket, which is backed by estate agents and launched in 2015, was ‘meant to disrupt the duopoly of Rightmove and Zoopla’ and it is now the UK’s third largest property portal.

‘But all this really means is that it’s first among the also-rans,’ he said.

‘It’ll be hoped the listing, which should bring a £50 million cash injection, can help it find another gear. The money is to be spent on advertising and raising brand awareness. In a business that’s all about generating the necessary scale, this seems a sensible strategy.

‘However, there’s a difference between doing the right thing and doing the right thing successfully. The challenge of toppling Rightmove remains a significant one.’

Key stats
Market capitalisation£308m
No. of shares out150m
No. of shares floating141m
No. of common shareholdersnot stated
No. of employees1745
Trading volume (10 day avg.)m
Profit before tax£29m
Earnings per share1.12p
Cashflow per share10.39p
Cash per share6.15p

Shore Capital: Hollywood Bowl can support ‘significant’ cash returns

Hollywood Bowl (BOWL) reported higher than expected profits in its annual results and Shore Capital is expecting ‘significant cash returns’ in future.

Analyst Greg Johnson retained his ‘buy’ recommendation and ‘fair value’ price of 220p on the stock, which reported earnings up 14% to £33.4 million, £800,000 ahead of his estimates. The shares surged 6.8% to 203p yesterday on the news.

‘We see this as a reassuring update from Hollywood Bowl, with profits and cashflow growing strongly and the pipeline continuing to build, securing its targeted growth out to 2020,’ he said.

‘Customer demand remains robust and the group’s numerous self-help initiatives provide significant support to future year forecasts, most notably its proprietary yield management capabilities. Hollywood Bowl trades on an attractive 2018 free cashflow yield of 7.5% and we believe its strategy can support broadly double-digit annual earnings growth and continued significant cash returns to shareholders.’

Key stats
Market capitalisation£445m
No. of shares out93m
No. of shares floating64m
No. of common shareholdersnot stated
No. of employees114
Trading volume (10 day avg.)m
Profit before tax£21m
Earnings per share16.99p
Cashflow per share17.52p
Cash per share79.81p

Polar Capital on the right track, says Peel Hunt

Peel Hunt is predicting a long-term growth opportunity at asset manager Polar Capital (POLR), after an overhaul of the strategy which included fund closures.

Analyst Stuart Duncan retained his ‘buy’ recommendation and target price of 560p on the stock, after interim results showed profit was up 38% to £12 million and assets under management increased 14% to £10.6 billion. The shares dropped 2p to 480p yesterday.

‘Interim results were comfortably ahead of our expectations, most importantly due to better underlying performance,’ he said. ‘Since the period end, assets have continued to move higher – up 8% in two months – leading us to remain convinced about the direction of travel.’

Duncan added: ‘Having announced a number of fund closures in recent weeks, the new chief executive confirms that his strategy will increase diversification of fund strategies, client segments and client geography, while adding new investment teams to complement existing strategies.’

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Look up the shares

  • Polar Capital Holdings PLC (POLR.L)
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  • Hollywood Bowl Group PLC (BOWL.L)
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  • Berkeley Group Holdings PLC (BKGH.L)
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  • Talktalk Telecom Group PLC (TALK.L)
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  • Rightmove PLC (RMV.L)
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