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The Expert View: WH Smith, Rightmove and Sky

Our daily roundup of analyst commentary on shares, also including Playtech and Bodycote.

by Michelle McGagh on Jun 07, 2018 at 05:00

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Key stats
Market capitalisation£2,329m
No. of shares out110m
No. of shares floating108m
No. of common shareholdersnot stated
No. of employees13773
Trading volume (10 day avg.)m
Profit before tax£184m
Earnings per share103.57p
Cashflow per share140.18p
Cash per share34.38p

Weather and wedding help WH Smith

The decline of WH Smith’s (SMWH) high street business is slowing as travel continues to boom, giving the stationer price power, says Hargreaves Lansdown.

A trading update form the company confirmed a 4% increase in group sales in the 13 weeks to 2 June, with like-for-like sales rising 1% boosted by an improved high street performance.

Analyst George Salmon said the pace of decline in high street sales was ‘notably slower than reported earlier in the year’, and he suspects warm weather and the Royal Wedding helped figures.

‘Even if we look past these short-term boosts, it’s impressive how the group’s cost-cutting measures mean rising profit margins are offsetting lower revenues,’ he said.

‘All the while the travel business continues to blossom…The attraction of the travel business is the customer is usually in such a rush that convenience takes priority over price, or in the case of airports, there aren’t many alternatives…This gives the group that most valuable of qualities: pricing power.’

The shares jumped 6.2% to £20.99 yesterday on the news.

Key stats
Market capitalisation£4,485m
No. of shares out91m
No. of shares floating90m
No. of common shareholdersnot stated
No. of employees479
Trading volume (10 day avg.)m
Profit before tax£180m
Earnings per share155.15p
Cashflow per share157.07p
Cash per share27.33p

Liberum downgrades Rightmove on lack of upside

Liberum has downgraded Rightmove (RMV), which it says is well run but with little potential for further share price gains.

Analyst Ian Whittaker downgraded his recommendation from ‘buy’ to ‘hold’ with a target price of £50 on the shares, which edged 14p lower to £49.46 yesterday.

‘There is now very little upside to our £50 target price, and no catalysts such as mergers and acquisitions that justify increasing the target price,’ he said.

‘We view Rightmove as an extremely well-run company with a dominant position in the property classifieds space. However, we also think there is little potential upside to our average revenue per advertiser or subscriber estimates.’

He added that a bid for Rightmove, as happened with Zoopla, was ‘unlikely’ as there is little scope for cost cutting.

Key stats
Market capitalisation£23,340m
No. of shares out1,719m
No. of shares floating976m
No. of common shareholdersnot stated
No. of employees28123
Trading volume (10 day avg.)4m
Profit before tax£2,136m
Earnings per share39.97p
Cashflow per share95.63p
Cash per share145.43p

Investors should sit tight on Sky bid go ahead, says Shore Capital

Culture secretary Matt Hancock has paved the way for a multi-million pound bidding war for Sky (SKYB) after approving Comcast’s bid, and shareholders should sit tight, says Shore Capital.

Analyst Roddy Davidson retained his ‘hold’ recommendation after the government confirmed Comcast could bid for Sky and Fox could also go ahead as long as it sells Sky News.

He said the stock had been trading at an 8% premium to Comcast’s £12.50 bid, meaning ‘there is clearly an expectation among investors that Fox will return’.

‘We would certainly not rule out this possibility, but we are mindful that Fox’s own circumstances have changed materially since its original approach. Specifically its appetite for increasing its offer is likely to be determined by Disney – which agreed in December to acquire the majority of its assets, including… its stake in Sky.’

Davidson added that Sky was an ‘attractive strategic asset in a consolidating space’.

‘It is difficult to second guess the extent to which Disney shares this assessment and will be inclined to pay up and we believe both offers are struck at comfortable premiums to its underlying fair value,’ he said.

Key stats
Market capitalisation£2,579m
No. of shares out317m
No. of shares floating288m
No. of common shareholdersnot stated
No. of employees5044
Trading volume (10 day avg.)1m
Turnover708m EUR
Profit before tax264m EUR
Earnings per share0.65 EUR
Cashflow per share0.91 EUR
Cash per share1.61 EUR

Numis: long term catalysts at Playtech

Numis is betting on long term catalysts to boost gaming software developer Playtech (PTEC) following its €846 million (£742 million) acquisition of Italian gaming company Snaitech.

Analyst Richard Stuber retained his ‘buy’ recommendation and target price of £11.25 on the stock, which jumped 2.8% to 811.8p yesterday.

He said the acquisition was at an ‘attractive price’ that ‘improves the quality of its earnings and leaves Playtech set to benefit from the current low online penetration in Italy’.

‘Playtech is -10% year-to-date and now trades at 5.5x full year 2019 enterprise value/earnings on a 6% dividend yield,’ he said.

‘We do not expect the shares to rerate in the near term given the first half comparatives, but upside from Snaitech, the possible return of Malaysia and, longer term, a potential demerger of Tradetech should all be seen as potential catalysts.’

Key stats
Market capitalisation£1,958m
No. of shares out191m
No. of shares floating189m
No. of common shareholdersnot stated
No. of employees5600
Trading volume (10 day avg.)1m
Profit before tax£183m
Earnings per share47.67p
Cashflow per share81.58p
Cash per share21.42p

Bodycote remains undervalued and underappreciated, says Jefferies

Thermal procession firm Bodycote (BOY) remains one of Jefferies more preferred UK industrial stocks thanks to its underappreciated and undervalued earnings.

Analyst Andy Douglas reiterated his ‘buy’ recommendation and increased the target price form £11.05 to £11.50 after a four-month trading update. The shares rose 1.2% to £10.27 yesterday.

He said he was ‘positively surprised by how well Bodycote has started full-year 2018’ and although year-on-year comparatives get harder each year he still expected ‘attractive’ progress thanks to a cyclical tailwind that was ‘underappreciated’.

‘Bodycote remains one of our more preferred UK industrials,’ he said. ‘We continue to believe the high margin, structural growth element of the group’s earnings profile is underappreciated and undervalued, and the very strong balance sheet gives management optionality.’

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  • Bodycote PLC (BOY.L)
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  • Playtech PLC (PTEC.L)
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  • Rightmove PLC (RMV.L)
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  • Sky PLC (SKYB.L)
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  • WH Smith PLC (SMWH.L)
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