The Expert View: Tesco, Asos and St James’s Place

Shareholders reaping rewards of Tesco turnaround

Tesco (TSCO) is enjoying a ‘renaissance’ following a turnaround plan and investors can look forward to growing dividends now the taps are back on, says Hargreaves Lansdown.

Full-year results from the supermarket giant showed profits of £1,644 million, up from £1,280 million last year and higher than the £1,575 million guidance. The supermarket followed November's 1p interim dividend, its first in three years, with a 2p final payout. The shares jumped 7.2% to 225.4p yesterday on the news.

Analyst Laith Khalaf said the outlook was more positive for the grocery sector after a ‘pretty challenging 2017’ and Tesco had ‘done well to increase its margins significantly’.

‘Tesco is enjoying a renaissance, and its turnaround plan is literally paying dividends to shareholders,’ he said.

‘The payment announced puts the stock on a yield of around 1.5%, not a great deal to write home about, but after a three-year hiatus, investors will be pleased to see the dividend taps flowing again. Looking forward, Tesco intends to pay out around half of its earnings to shareholders, so improved business performance will mean the dividend has scope to grow too.’

Asos investment will drive growth, says Numis

Capital expenditure plans have hit cash forecasts at online fashion retailer Asos (ASOS) but Numis believes the investment will drive the brand in the long term.

Analyst Andrew Wade retained his ‘buy’ recommendation and target price of £85.00 on the stock after half-year results that showed profit before tax of £29.9 million, slightly ahead of Numis estimates. The shares initially tumbled to £61.78 yesterday, before recovering round to close at £69.90, down just 40p on the day.

The company also updated its capex and cash guidance to reflect ongoing investment in infrastructure and technology to support its rapid growth. Capex is expected to be £230-250 million for 2018 until 2020. Numis had previously estimated a peak of £220 million this year, falling to £200 million next year.

‘While cash forecasts have been impacted by a further capex acceleration and working capital effects, we believe Asos’ investments are supporting and driving a clear, long-term, profitable growth opportunity and retain our positive stance,’ he said.

SJP growth deserves a higher multiple, says Barclays

St James’s Place (SJP) has hidden earnings momentum and should be trading closer to the same multiples as competitor Hargreaves Lansdown, says Barclays.

Analyst Alan Devlin retained his ‘overweight’ recommendation and increased the target price from £13.63 to £13.75. The shares rose 2.5p to £10.75 yesterday.

Devlin said the company had a record 2017 in terms of inflows and the new chief executive has reiterated his confidence that these could grow by a further 15-20%.

‘The savings and advice gap continues to grow in the UK and we view SJP, along with Hargreaves Lansdown, as the primary beneficiaries of this trend,’ he said.

‘However, while SJP has grown its assets under management (AUM) in line with Hargreaves Lansdown, its stock and multiple have lagged. With estimated AUM growth of 18% from 2013 through to 2020, we believe SJP should trade closer to Hargreaves Lansdown’s 32x 2018 multiple.’

Peel Hunt: higher Hammerson bids could be coming

Property developer Hammerson (HMSO) has rejected an increased bid from Klepierre but Peel Hunt said a higher bid may be in the offing that would be more tempting.

Analyst Matthew Saperia retained his ‘hold’ recommendation and target price of 525p on the shares after Klepierre increased its bid offer by 3% to 635p per share. The shares fell 3.6p to 521.4p yesterday.

At a 20% discount to net asset value, Hammerson said the offer ‘significantly undervalued’ the company.

‘However, this is still a 45% premium to Hammerson’s starting share price and the revised proposal presumably factors in feedback it has garnered from Hammerson’s own shareholders,’ said Saperia.

‘The Monday 5pm offer deadline remains, and we believe 650p or higher would be very tempting, especially against the backdrop of retail headwinds in the UK and softening asset prices.’

McCarthy undervalued by investors, says Jefferies

A review of ground rents has left investors wary of McCarthy & Stone (MCS) but Jefferies believe the retirement home developer is offering the potential for high growth for ‘many years’.

Analyst Anthony Codling retained his ‘buy’ recommendation and target price of 267p on the shares, which fell 3.7% to 132p yesterday.

‘McCarthy currently trades below current year 2018 net book value, whereas the broader UK housebuilding sector trades at more than a 50% premium,’ he said. ‘It seems to us that currently investors cannot see past McCarthy’s ground rent [review], but we see significant upside for the price of McCarthy’s shares once it leaves [this] behind.’

He added that the company was ‘the market-leading provider’ for homes for people aged 55-plus and ‘given the profile of the UK’s ageing population, we believe that the market for age-specific housing has the potential for high growth for many years’.