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The Expert View: Tesco, WPP and Howden

Our daily roundup of analyst commentary on shares, also including Schroders and National Express.

by Michelle McGagh on Mar 02, 2018 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£17,117m
No. of shares out8,192m
No. of shares floating7,937m
No. of common shareholdersnot stated
No. of employees133041
Trading volume (10 day avg.)29m
Turnover£55,917m
Profit before tax£2,637m
Earnings per share0.88p
Cashflow per share16.70p
Cash per share83.57p

Tesco: Booker won't shake Shore's 'buy' rating

Tesco’s (TSCO) takeover of Booker has been waved through by shareholders but Shore Capital does not believe the deal will ‘move the dial’ on the supermarket’s shares.

Analyst Clive Black retained his ‘buy’ recommendation on the shares, which fell 1% to 208.6p yesterday.

‘We have a “buy” recommendation on Tesco’s shares largely predicated upon an expectation of steady revenue growth, further margin recovery and so rating compression of the group’s earnings multiple, particularly in full year 2020,’ he said.

‘While we need to confirm the financial aspect of the Booker merger, it is not expected to move the earnings dial in the short-term at least.’

Key stats
Market capitalisation£15,833m
No. of shares out1,270m
No. of shares floating1,226m
No. of common shareholdersnot stated
No. of employees133931
Trading volume (10 day avg.)7m
Turnover£14,389m
Profit before tax£2,373m
Earnings per share108.00p
Cashflow per share148.87p
Cash per share190.26p

Digital giants taking on WPP, says Hargreaves

Advertising giant WPP (WPP) has delivered less than sparkling full-year results, with Hargreaves Lansdown believing it is proof the competition is creeping in.

WPP reported a 0.9% drop in underlying new sales over the year and warned of flat growth in 2018. The group also downgraded long-term guidance on future earnings growth from 10-15% a year to 5-10%. The shares fell 8.2% to £12.80 on the news.

Analyst George Salmon said ‘nobody was expecting these results to sparkle, but WPP saying trading conditions have deteriorated to the extent it doesn’t think it’ll deliver underlying growth next year has come as a surprise’.

While WPP blame ‘customers rationalising cost bases’, Salmon said the ‘likes of Google and Facebook are stealing a march’.

‘WPP’s various divisions are to pull together to try and create a closely integrated group capable of delivering an even more bespoke service to its customers,’ said Salmon.

‘This sounds like a good outcome, but the jury still very much out on how much damage Silicon Valley’s new media giants could do.’

Key stats
Market capitalisation£2,955m
No. of shares out621m
No. of shares floating615m
No. of common shareholdersnot stated
No. of employees8852
Trading volume (10 day avg.)2m
Turnover£1,307m
Profit before tax£261m
Earnings per share29.39p
Cashflow per share33.19p
Cash per share36.05p

Howden is too cheap, says Numis

Shares in kitchen cabinet maker Howden (HWDN) are ‘too cheap’ considering the pick-up in sales, says Numis.

Analyst Howard Seymour retained his ‘add’ recommendation and target price of 512p on the stock after full year results came in ‘slightly ahead’ of forecast and the company announced a further £60 million share buyback over the next two years. The shares rose 8.2% to 480.3p yesterday.

‘In our view the shares are too cheap on c.12 times 2019 earnings, particularly given the ongoing momentum in sales,’ said Seymour.

‘With Howden forecast to show double-digit earnings growth while maintaining a strong balance sheet and investing in additional capacity, the shares remain attractive and should continue to outperform the UK market.’

Key stats
Market capitalisation£9,613m
No. of shares out283m
No. of shares floating171m
No. of common shareholdersnot stated
No. of employees3643
Trading volume (10 day avg.)m
Turnover£2,145m
Profit before tax£591m
Earnings per share174.76p
Cashflow per share191.30p
Cash per share1,327.66p

Jefferies backs Schroders for more growth

Asset manager Schroders (SDR) has reported strong growth in 2017 and Jefferies believes its investment in products and geographies will build on that.

Analyst Phil Dobbin retained his ‘buy’ recommendation and target price of £40.26 on the shares, which fell 1.9% to £33.85 yesterday.

Schroders reported profit before tax after exceptional items of £800 million, 23% ahead of 2016 and ‘above both consensus and our estimates’, said Dobbin.

‘This was driven by a combination of revenue growth and cost discipline. Assets under management increased 13% to £447 billion over the year, with net inflows across all divisions. The board will recommend a final dividend of 79p, taking the full-year dividend to 113p, a 22% increase, and again ahead of our estimates and consensus,’ he said.

‘Schroders will continue to invest for future growth through diversifying the product offering, the company’s geographic reach and through technology.’

Key stats
Market capitalisation£1,836m
No. of shares out512m
No. of shares floating439m
No. of common shareholdersnot stated
No. of employees44977
Trading volume (10 day avg.)1m
Turnover£2,094m
Profit before tax£341m
Earnings per share21.85p
Cashflow per share52.95p
Cash per share62.16p

Liberum: National Express on the road to further gains

Coach operator National Express (NEX) trades on a premium to peers but Liberum believes this is ‘well deserved’ and sees potential for more growth.

Analyst Gerald Khoo retained his ‘buy’ recommendation and target price of 390p on the stock after ‘strong’ full-year results with ‘good underlying performances at all divisions’ that were ‘supplemented by a favourable currency translation tailwind for the non-UK operations’.

‘The outlook is for more of the same,’ he said. ‘Winter weather has not had a material impact at the group level. Currency translation becomes a headwind in 2018, but with mitigation from lower fuel costs and a lower tax rate, as well as continued underlying progress.’

He said the shares traded on a premium but that is ‘well deserved’ and he sees ‘further upside potential to the rating in absolute terms’.

The shares rose 2.8% to 362.4p yesterday.

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  • WPP PLC (WPP.L)
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  • Howden Joinery Group PLC (HWDN.L)
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  • Schroders PLC (SDR.L)
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  • Tesco PLC (TSCO.L)
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  • National Express Group PLC (NEX.L)
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