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The Expert View: Tesco, Pets At Home and Watkin Jones

Our daily roundup of analyst commentary on shares, also including Shaftesbury and Renew Holdings.

by Michelle McGagh on May 23, 2018 at 05:00

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Key stats
Market capitalisation£24,395m
No. of shares out9,784m
No. of shares floating9,383m
No. of common shareholdersnot stated
No. of employees448988
Trading volume (10 day avg.)30m
Turnover£57,491m
Profit before tax£2,860m
Earnings per share12.09p
Cashflow per share27.92p
Cash per share62.94p

Tesco recovery building, says Shore Capital

Management changes at Tesco (TSCO) show the supermarket giant is serious about its competition and can continue its recovery, says Shore Capital.

Analyst Clive Black reiterated his ‘buy’ recommendation on the stock, which was trading flat at 250p at the time of writing.

The group has made three internal changes to its senior team as Tony Hoggett returns to the UK in a new role as group chief operating officer to help run the core chain’s stores.

‘We believe that the group can consolidate upon its recent recovery, weave Booker into the wider business, stay focused in the face of whatever emerges with respect to Sainsbury’s proposed merger with Asda, and correspondingly deliver strong earnings per share growth, considerable free cashflow and even more robust dividend per share distribution,’ he said.

‘At the same time we believe that ongoing deleveraging can bolster the stock rating.’

Key stats
Market capitalisation£727m
No. of shares out500m
No. of shares floating456m
No. of common shareholdersnot stated
No. of employees6811
Trading volume (10 day avg.)1m
Turnover£834m
Profit before tax£130m
Earnings per share14.95p
Cashflow per share20.83p
Cash per share11.64p

Hargreaves: Pets at Home facing challenges

Pets at Home (PETSP) has plenty of challenges ahead with online competition being tougher than expected and falling profits, says Hargreaves Lansdown.

Full-year results from the pet retailer showed revenues up 7.8% but a fall in pre-tax profits of 16.6% to £79.6 million to a lowering of prices. The shares were down 8% at 145.3p yesterday.

Analyst George Salmon said although the full-year dividend remained steady at 7.5p per share ‘there are plenty of challenges around’.

‘Having previously had more lofty ambitions, Pets has bumped up against the side of a tank a bit earlier than it expected, and is only adding the odd new superstore here and there. We suspect online competition is providing a bigger factor than the group originally thought,’ he said.

Key stats
Market capitalisation£530m
No. of shares out255m
No. of shares floating171m
No. of common shareholdersnot stated
No. of employees678
Trading volume (10 day avg.)m
Turnover£302m
Profit before tax£44m
Earnings per share14.02p
Cashflow per share14.45p
Cash per share25.95p

Jefferies backs Watkin Jones’ ‘innovative’ ideas

Construction and development company Watkin Jones (WJG) is finding innovative ways to boost shareholder returns, says Jefferies.

Analyst Anthony Codling retained his ‘buy’ recommendation and target price of 250p on the stock following in-line half-year results. The shares were flat at 208p yesterday.

Although Codling said he would not be making any changes to full-year estimates, he said ‘the board is exploring some innovative ways to enhance shareholder returns in the medium term’ through a ‘build to rent’ plan.

‘The board is at an early stage of exploring ways to enhance shareholder returns via a new investment vehicle,’ he said. ‘We view this as very positive as it shows that despite the chief executive transition, the board is driving the business forward.

‘Build to Rent is a hugely untapped market and one that the traditional housebuilders are largely leaving untouched. We believe that a focused investment vehicle in the build to rent market may generate attractive returns.’

Key stats
Market capitalisation£3,041m
No. of shares out307m
No. of shares floating223m
No. of common shareholdersnot stated
No. of employees27
Trading volume (10 day avg.)m
Turnover£112m
Profit before tax£75m
Earnings per share107.79p
Cashflow per share107.90p
Cash per share15.02p

Liberum: Shaftesbury deserves its premium

Rising rents are helping to boost income at Shaftesbury (SHB) which justifies the real estate investment trust’s (Reit) premium, says Liberum.

Analyst David Brockton retained his ‘hold’ recommendation and target price of £10.75 on the shares, which were flat at 990p yesterday.

First-half results ‘confirm another period of good earnings and capital gain just ahead of our forecasts’, said Brockton.

‘Rising rental values also continued to be converted into income, with like-for-like rental growth +6.8% supporting earnings of +10% and the dividend per share up 5%,’ he said.

‘Strong demand combined with a relentless focus on making incremental improvements across Shaftesbury’s vast West End estate underpins an attractive long-term growth opportunity. The shares trade on a deserved premium.’

Key stats
Market capitalisation£298m
No. of shares out75m
No. of shares floating71m
No. of common shareholdersnot stated
No. of employees2864
Trading volume (10 day avg.)m
Turnover£559m
Profit before tax£35m
Earnings per share19.88p
Cashflow per share39.35p
Cash per share11.13p

Renew Holdings shares offer ‘attractive mix’, says Numis

Half-year results from Renew Holdings (RNWH) were positive and the acquisition of rail contractor QTS makes the engineering services group even more attractive, according to Numis.

Analyst Howard Seymour retained his ‘buy’ recommendation and target price of 500p on the shares, which fell a penny to 399p yesterday.

Interim results, which do not include contributions from QTS, were ‘comforting’ in that ‘rail-related working capital flows are being recovered in line with expectations and that management confidence about the outlook in rail remains positive’, said Seymour.

‘We retain estimates and also the view that, post QTS, the shares offer an attractive mix both in terms of rail exposure and scope to organically grow in other areas of non-discretionary infrastructure operational expenditure,’ he said.

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  • Pets at Home Group PLC (PETSP.L)
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  • Renew Holdings PLC (RNWH.L)
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  • Shaftesbury PLC (SHB.L)
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  • Tesco PLC (TSCO.L)
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  • Watkin Jones PLC (WJG.L)
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