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The Expert View: William Hill, Mitie and Xaar

Our daily roundup of analyst commentary on shares, also including Melrose Industries and International Personal Finance.

by Michelle McGagh on Nov 21, 2017 at 05:00

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Key stats
Market capitalisation£2,349m
No. of shares out858m
No. of shares floating855m
No. of common shareholdersnot stated
No. of employees16286
Trading volume (10 day avg.)3m
Profit before tax£336m
Earnings per share18.80p
Cashflow per share28.70p
Cash per share24.29p

Hargreaves: beware regulation headache at William Hill

William Hill (WMH) may have reported increased revenues in the second half of the year but Hargreaves Lansdown has warned the bookmarker faces a number of challenges.

A stronger than expected showing in UK retail and online meant net revenues were up 4% in the second half, above the 3% growth for the year as a whole.

Analyst George Salmon said a ban on extending lines of credit to customers in Australia was ‘already putting the brakes on growth’ but UK regulation of fixed-odds betting terminals was a bigger threat.

‘The most pressing challenge for the group is the much-anticipated clampdown on fixed-odds betting terminals in the UK,’ he said.

‘The government consultation is still ongoing, but it’s as much of a sure thing as anything in gambling that the new limit on stakes will be well below the current £100 cap. Slashing the maximum to just £2 is still among the favourites, and with machines responsible for millions in revenues each year, this would seriously impact the group’s bottom line.’

Key stats
Market capitalisation£828m
No. of shares out366m
No. of shares floating336m
No. of common shareholdersnot stated
No. of employees52798
Trading volume (10 day avg.)1m
Profit before tax£31m
Earnings per share-14.70p
Cashflow per share-3.68p
Cash per share35.71p

Mitie transformation on track, says Peel Hunt

Mitie (MTO) has reported in line interims but the better news is the transformation of the outsourcing company is on track, says Peel Hunt.

Analyst Christopher Bamberry retained his ‘hold’ recommendation and target price of 253p on the shares, which edged 1.3p higher to 226.1p yesterday.

‘Full-year 2018 interims are broadly in line with profit before tax essentially flat at £23.9 million,’ he said.

‘Management expects to see further positive impact from their actions in the second half. Transforming a large, diverse business such as Mitie is neither linear nor without challenges, but the programme remains on track.’

Key stats
Market capitalisation£298m
No. of shares out78m
No. of shares floating75m
No. of common shareholdersnot stated
No. of employees626
Trading volume (10 day avg.)m
Profit before tax£28m
Earnings per share18.92p
Cashflow per share29.96p
Cash per share64.70p

Jefferies upbeat on Xaar despite growth worries

Commercial inkjet printer maker Xaar (XAR) has issued an unscheduled trading update warning of slower sales and lower profits but Jefferies believes there is still scope for ‘significant long-term growth’.

Analyst Andy Douglas retained his ‘buy’ recommendation and target price of 560p on the shares, which slumped 15.9% to 384p yesterday.

‘Xaar issued an unscheduled trading update, indicating that the anticipated ramp in second-half 2017 sales needed to hit consensus is not coming through, with slower-than-expected sales of the 2001 – challenging demand and competitive landscape – and the 1201 – supply constraints – printheads,’ he said.

‘This will have a negative impact on profits and consensus downgrades will likely follow, however there is still scope for significant long-term growth to come through.’

Douglas noted that the trading update was ‘a considerable blow and there may be some frustration among shareholders’.

‘We have always recognised that the group is going through a huge transition, which we have never underestimated, and that there were huge growth opportunities, but the absolute predictability of the business over the near-term was difficult to call,’ he said.

Key stats
Market capitalisation£2,152m
No. of shares out995m
No. of shares floating954m
No. of common shareholdersnot stated
No. of employees8707
Trading volume (10 day avg.)4m
Profit before tax£55m
Earnings per share0.73p
Cashflow per share2.29p
Cash per share7.08p

Melrose Industries a ‘buy’ for long-term growth, says The Share Centre

Melrose Industries’ (MRON) newest acquisition has exceeded expectations, proving the engineering buyout specialist can provide long-term growth and cash for investors, says The Share Centre.

Analyst Ian Forrest recommended the stock as a ‘buy’ for ‘the chance of further long-term growth and cash returns’ for those seeking a ‘medium level’ of risk.

He noted the acquisition of US cooling and heating systems company Nortek.

‘Management saw potential for improving it performance by refocusing its product range, overhauling the supply chain, debt structure and back office, leading to improved margins,’ said Forrest. ‘Interested investors should note that Nortek’s performance is exceeding expectations and its prospects are better than originally thought.’

Forrest said he was a fan of the company’s strategy ‘of buying businesses that are underperforming to improve and eventually sell on’.

‘Management have many years’ experience and an excellent track record of improving businesses it has acquired,’ he said.

Key stats
Market capitalisation£449m
No. of shares out223m
No. of shares floating220m
No. of common shareholdersnot stated
No. of employees7598
Trading volume (10 day avg.)m
Profit before tax£300m
Earnings per share31.30p
Cashflow per share39.69p
Cash per share19.55p

Accounting rules headache for International Personal Finance

New accounting rules will not have an adverse effect on International Personal Finance (IPF) and Shore Capital believes there are a range of outcomes to consider for the consumer credit company.

Analyst Gary Greenwood retained his ‘hold’ recommendation after a teach-in on the impact of the new IFRS9 rules that ‘will see lenders move from accounting for provisions on an incurred loss basis – ie, only taking a charge when there has been a trigger event – to an expected loss basis, ie, taking a more forward-looking view.

‘While this accounting change will change the shape of the income statement and balance sheet… it should not impact on the fundamental value of the business or the way it is managed,’ said Greenwood.

‘At the third quarter update in October, we signalled a revised “fair value” of around 170p for the stock, which factors in a healthy haircut for the various regulatory, taxation and competitive risks the group currently faces.’

He said the fair value price factors in a 12% downside to the current price, ‘which would normally be a trigger for a negative stance, however given the wide range of possible outcomes, we think sticking with a “hold” stance remains appropriate’.

The shares were up 4.6% at 201.3p yesterday.

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  • William Hill PLC (WMH.L)
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  • Mitie Group PLC (MTO.L)
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  • Xaar PLC (XAR.L)
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  • Melrose Industries PLC (MRON.L)
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  • International Personal Finance PLC (IPF.L)
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