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The Expert View: Unilever, Burberry and WH Smith
Our daily roundup of analyst commentary on shares, also including RWS and Countryside Properties.
by Michelle McGagh on Apr 13, 2017 at 05:00
Unilever: scope for more buybacks, says Berenberg
Unilever (ULVR) shareholders will benefit from short-term share buybacks after the strategic review and Berenberg believe there is scope for greater returns.
Analyst James Targett retained his ‘buy’ recommendation on the stock, which was trading flat at £40.69 at the time of writing.
‘Higher margins, 100% free cashflow generation and a 2x target net debt/earnings means shareholders should benefit from a significant return of excess capital over the next few years,’ he said.
‘Unilever kicks off with a €5 billion buyback in 2017. Even factoring in €2 billion for bolt-on mergers and acquisitions, Unilever could return an additional €5 billion in 2018. Our earnings per share forecasts include a €9 billion buyback in 2018, factoring in a €6 billion sales of spreads.’
He added that much of the outcome of the strategic review was expected and ‘the continued reinvestment in growth means the risk to organic sales growth is limited’.
‘Greater balance sheet optimisation will benefit shareholders, while the group legal structure review provides a hint of larger deals in years to come,’ said Targett.
Liberum: WH Smith balance sheet remains strong
WH Smith (SMWH) shares are outperforming the wider retail sector and Liberum believes the balance sheet remains strong.
Analyst Adam Tomlinson retained his ‘hold’ recommendation and target price of £17.00 on the stock, which was trading down 3.2%, or 60p, at £17.65 at the time of writing.
‘There are no surprises in the interims and we do not expect any material change to consensus forecasts,’ he said.
‘Travel like-for-likes are running ahead of our full-year estimate, which provides some upside risk. High street has delivered a flat performance in line with expectations against a tougher comparison.’
Tomlinson said that despite increasing debt, the ‘group’s balance sheet remains healthy and we expect this to continue’.
‘The shares are up 17% year-to-date, significantly outperforming wider UK retail, and trade on a current year 2017 estimated price/earnings ratio of 17.6x,’ he said.
Deutsche Bank expects Burberry sales to be up
Designer fashion brand Burberry (BRBY) could benefit from the strong sales seen at market leader Louis Vuitton (LVMH), says Deutsche Bank.
Analyst Warwick Okines retained his ‘hold’ recommendation and increased the target price from £15.25 to £16.50 ahead of a second half sales update. The stock was trading up 0.7%, or 14p, at £17.82 at the time of writing.
‘Burberry reports its second half sales on 19 April. Market leader LVMH’s strong sales performance... increases the upside risk for Burberry’s sales and we raise our fourth quarter store sales expectation to +6%,’ he said.
Burberry will also benefit from a beauty deal with cosmetics company Coty and the fact that designer clothing is ‘back in fashion’. Main risks to the stock ‘on the upside and downside relate to currency movements and sales momentum’, he added.
Numis sees ‘significant upside’ at Countryside Properties
Numis is predicting Countryside Properties (CSPC) will be able to grow at double the rate of the wider house building sector.
Analyst Chris Millington retained his ‘buy’ recommendation and target price of 346p on the stock after a company update. The stock was trading up 4.3%, or 11.3p, at 273p at the time of writing.
‘Countryside’s update looks highly supportive of our growth assumptions for 2017 and beyond. We estimate the company can grow at double the rate of the wider house building sector and this is not reflected in its current rating,’ he said.
‘While the shares are up 10% since then, we continue to see significant upside.’
RWS reports strong half year numbers
Despite strong share price performance, Shore Capital believes there is more to go for intellectual property translation and filing services company RWS Holdings (RWS).
Analyst Ben McSkelly retained his ‘buy’ recommendation on the stock, which was trading up 4.4%, or 15p, at 355p at the time of writing.
‘Revenues of more than £76 million are expected, a 33.6% increase on the first half of 2016, and adjusted profit before tax of more than £19 million, a 36.7% increase,’ he said.
‘We believe upgrades to current year performance will lower [the 23.6x price/earnings] multiple but it should remain over 20 times. At this level RWS trades on a premium for its quality operations, access to growth markets and crucially defensible position and hence, despite strong performance retain a “buy” recommendation.’
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Look up the shares
- Unilever PLC (ULVR.L)
- Burberry Group PLC (BRBY.L)
- WH Smith PLC (SMWH.L)
- RWS Holdings PLC (RWS.L)
- Countryside Properties PLC (CSPC.L)