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The Expert View: Virgin Money, Secure Trust and WPP

Our daily roundup of analyst commentary on shares, also including Shire and Boohoo.

by Michelle McGagh on Apr 17, 2018 at 05:00

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Key stats
Market capitalisation£1,183m
No. of shares out445m
No. of shares floating283m
No. of common shareholdersnot stated
No. of employees2413
Trading volume (10 day avg.)1m
Turnover£958m
Profit before tax£334m
Earnings per share37.52p
Cashflow per share49.90p
Cash per share660.40p

Barclays: Virgin Money share falls an opportunity

Falls in Virgin Money (VM) shares are overdone and Barclays believes investors are looking at a buying opportunity.

Analyst Aman Rakkar reiterated his ‘overweight’ recommendation and increased the target price from 320p to 360p. The shares were flat at 263.7p yesterday.

‘Lower net interest margins, slower volumes, and digital bank costs have seen earnings expectations cut,’ he said. ‘But the shares have derated to a level implying fears of further wholesale downgrades, which we see as overdone.

‘We gain greater conviction on the outlook for net interest margins which should find support from rising rates, and expect to see the end of downgrades.’

Rakkar added the ‘depressed valuation offering’ means an ‘attractive risk reward’.

Key stats
Market capitalisation£346m
No. of shares out18m
No. of shares floating13m
No. of common shareholdersnot stated
No. of employees734
Trading volume (10 day avg.)m
Turnover£141m
Profit before tax£28m
Earnings per share106.45p
Cashflow per share121.43p
Cash per share1,409.46p

Shore Capital predicts rerating at Secure Trust Bank

Shares in Secure Trust Bank (STBS) could be on the brink of a ‘significant’ re-rating, according to Shore Capital.

Analyst Gary Greenwood retained his ‘buy’ recommendation on the shares, which were flat at £18.75 yesterday.

‘Secure Trust Bank is currently our top pick among the specialist bank sub-sector,’ he said. ‘A near halving of the share price over the past couple of years has created an excellent opportunity to invest in this well-capitalised, well-diversified, and high-margin specialist lender at an attractive valuations.’

He added that the shares could ‘be on the cusp of a significant rerating with the catalyst for this being a resumption of strong earnings growth, which in turn should drive a recovery in the return on tangible equity’.

‘Importantly, we think the growth in earnings and improvement in returns can be achieved while still maintain a relatively cautious risk appetite,’ said Greenwood. ‘This reflects the group’s small size, which means that it is not overly-reliant on UK economic growth given the scope to take market share.’

Key stats
Market capitalisation£14,244m
No. of shares out1,266m
No. of shares floating1,222m
No. of common shareholdersnot stated
No. of employees133931
Trading volume (10 day avg.)5m
Turnover£15,265m
Profit before tax£2,590m
Earnings per share124.04p
Cashflow per share167.76p
Cash per share188.31p

Liberum: speculation abounds over WPP’s future

WPP (WPP) chief executive Martin Sorrell has resigned amid an investigation into allegations of misconduct, and Liberum said it could be a catalyst for sales at the advertising giant.

Analyst Ian Whittaker retained his ‘buy’ recommendation and target price of £17.50 on the shares, which fell 6.5% to £11.11 yesterday.

Whittaker said the resignation would ‘raise speculation about the future of the group’.

‘We think there is a significant possibility that WPP will now sell its data investment – market research unit – and public relations, but that the rest of the group will be kept,’ he said.

‘This should drive a closing of the gap between the valuations and performance of WPP and the other agencies.’

Key stats
Market capitalisation£33,238m
No. of shares out912m
No. of shares floating895m
No. of common shareholdersnot stated
No. of employees23044
Trading volume (10 day avg.)4m
Turnover10,647m USD
Profit before tax3,997m USD
Earnings per share1.42 USD
Cashflow per share3.16 USD
Cash per share0.38 USD

Shire is undervalued, says Jefferies

The sale of Shire’s (SHP) oncology business for $2.4 billion (£1.7 billion) shows the stock is undervalued, and should boost its negotiating power with Japanese Takeda which is bidding for the pharma company, says Jefferies.

Analyst Peter Welford retained his ‘buy’ recommendation and target price of £41 on the shares, which fell 1.1% to £35.67 yesterday.

‘Shire’s planned sale of its oncology business to Servier for $2.4 billion again underpins our thesis that the stock is undervalued, with proceeds earmarked to ‘increase optionality’, and the board is considering a buyback,’ he said.

‘The cash consideration is just above our $2.3 billion net present value, representing 9.2x 2017 sales.

‘The deal should also boost Shire’s negotiating position on asking price in the current offer period with Takeda.’

Key stats
Market capitalisation£1,788m
No. of shares out1,149m
No. of shares floating714m
No. of common shareholdersnot stated
No. of employees1301
Trading volume (10 day avg.)9m
Turnover£295m
Profit before tax£35m
Earnings per share2.16p
Cashflow per share2.59p
Cash per share6.26p

Investment no reason to cry over Boohoo, says Peel Hunt

Peel Hunt believes concerns online retailer Boohoo (BOOH) will suffer margin falls as it invests are not justified.

Analyst John Stevenson retained his ‘buy’ recommendation and target price of 300p on the shares ahead of final results, with the company ‘on track for another year of record growth’.

‘There is a concern that Boohoo needs to cut margin guidance in order to invest in the proposition,’ he said. ‘We believe Boohoo is already investing heavily; capital expenditure for 2018-2020 is £257 million compared to £52 million for the three previous years.’

He added that he expected Boohoo to update on ‘medium-term fulfilment plans and the “supersite’’.’

The shares inched 0.4% higher to 154.1p yesterday.

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  • Virgin Money Holdings (UK) PLC (VM.L)
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  • Secure Trust Bank PLC (STBS.L)
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  • WPP PLC (WPP.L)
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  • Shire PLC (SHP.L)
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  • Boohoo.Com PLC (BOOH.L)
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