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The Expert View: William Hill, Shire & Whitbread

Our daily roundup of analyst commentary on shares, including Spirent and 4imprint.

on May 09, 2018 at 05:01

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Key stats
Market capitalisation£2,425m
No. of shares out861m
No. of shares floating858m
No. of common shareholdersnot stated
No. of employees16168
Trading volume (10 day avg.)9m
Profit before tax£373m
Earnings per share-9.71p
Cashflow per share0.51p
Cash per share35.73p

Hargreaves: William Hill’s big prize will be the US

Revenues at William Hill (WMH) have risen but the big win will be from the potentially prosperous US market, says Hargreaves Lansdown.

The bookmaker saw underlying first quarter revenues rise 3% thanks to a strong online performance and the US market, which offset a weak UK high street. William Hill enjoyed an ‘unprecedented run’ of bookmaker-friendly results.

‘The really big numbers in this set of results are reserved for the relatively small US business,’ said analyst Nicholas Hyett.

‘At the moment, sports betting is legal in only a handful of states, but with the Supreme Court currently examining the laws, the world’s largest economy could be on the verge of becoming far more hospitable to bookies. William Hill is gearing itself up to compete if gambling becomes more widespread.’

The shares firmed 1.4p on Tuesday to close 0.5% up at to 280p.

Key stats
Market capitalisation£36,482m
No. of shares out914m
No. of shares floating888m
No. of common shareholdersnot stated
No. of employees23044
Trading volume (10 day avg.)6m
Turnover11,205m USD
Profit before tax4,207m USD
Earnings per share1.49 USD
Cashflow per share3.33 USD
Cash per share0.40 USD

Shire-Takeda deal is ‘reasonable value’, says Shore Capital

Shire (SHP) has made an agreement with pharma company peer Takeda on a £46 billion takeover offer, which Shore Capital says looks like ‘reasonable value’.

Analyst Tara Raveendran retained her ‘buy’ recommendation on Shire after a deal was reached that sees each Shire shareholder receive $30.33 in cash plus shares in Takeda, worth a total of £49 a share.

‘The deal represents a 56.2% premium to Shire’s 30-day trading day volume-weighted average and values the group at £46 billion,’ said Raveendran. ‘Post deal close, Shire shareholders will own c.50% of the enlarged group.’

The Shire directors will recommend the deal unanimously and the acquisition is expected to become effective in the first half of 2019 subject to shareholder approval.

‘While we acknowledge the consideration as including the part receipt of Takeda’s equity, given the absence of predictable catalysts over the next 12 months to close the fundamental valuation gap, we see the current proposal offer as offering reasonable value to shareholders over this timeframe, ‘ said Raveendran.

Shire shares jumped 4.6%, or 178p, to £40.34, a discount to the offer.

Key stats
Market capitalisation£7,788m
No. of shares out184m
No. of shares floating180m
No. of common shareholdersnot stated
No. of employees42044
Trading volume (10 day avg.)1m
Profit before tax£830m
Earnings per share239.08p
Cashflow per share363.70p
Cash per share49.45p

Growth potential after Costa demerger, says Numis

A successful demerger of Costa from Whitbread (WTB) will depend on the ability to cut costs at the coffee shop chain, which could transform its growth prospects, says Numis Securities.

Analyst Tim Barrett retained his ‘hold’ recommendation and target price of £43.30 on the stock, which added 15p or 0.3% to £42.55.

‘Our analysis suggests that the current share price is discounting a c.10x ebitda [earnings before interest, tax, depreciation and amortisation] multiple for Premier Inn and 12x for Costa, both broadly fair value for the strength of market position and rollout potential tempered by the weak fundamental outlook in the short term,’ he said.

Although Costa’s growth has stalled due to a weak high street, there is growth in travel and Costa Express machines.

‘We expect low profit growth in the next few years [after the demerger],’ said Barrett. ‘Nonetheless, subtle repositioning of the estate could transform growth and we expect the market to ascribe a degree of M&A premium to the independent business.’

Key stats
Market capitalisation£732m
No. of shares out612m
No. of shares floating605m
No. of common shareholdersnot stated
No. of employees1505
Trading volume (10 day avg.)m
Turnover336m USD
Profit before tax56m USD
Earnings per share0.04 USD
Cashflow per share0.07 USD
Cash per share0.16 USD

Liberum: Spirent puts growth drivers in place

Liberum expects communications company Spirent (SPT) to gain momentum this year as it rolls out high-speed ethernet testing.

Analyst Janardan Menon retained his ‘buy’ recommendation and target price of 144p on the stock after a first quarter trading update that ‘suggests that it is on track to meet its full-year expectations’.

‘The anticipated rebound in 400G high-speed ethernet testing (the Visionworks project) in the second half remains intact,’ he said.

‘We expect Visionworks to be an important driver of growth for the company in coming years. We also forecast the return to revenue growth from 2018 to drive further margin expansion. The business is expected to gain momentum through the year and current market expectations are likely to prove conservative in our opinion.’

Spirent shares added 2p to 120.6p.

Key stats
Market capitalisation£514m
No. of shares out28m
No. of shares floating26m
No. of common shareholdersnot stated
No. of employees912
Trading volume (10 day avg.)m
Turnover463m USD
Profit before tax33m USD
Earnings per share0.76 USD
Cashflow per share0.82 USD
Cash per share0.81 USD

4imprint: ‘undemanding’ valuation, says Peel Hunt

A trading update from promotional gifts printer 4imprint (FOUR) beat targets thanks to a successful advertising campaign, says Peel Hunt.

Analyst Malcolm Morgan retained his ‘add’ recommendation and target price of £20.50 on the stock, whose share price he described as undemanding. This followed a trading update for the first four months of the year which showed revenues were 16% ahead on last year. The shares advanced 80p or 4.5% to £18.50.

‘The continued evidence of the success of existing marketing efforts and the positive early indication of the success of the brand awareness campaign will be well received; the market should reach positively to [the] news,’ he said.

‘With the dollar at $1.35/£1 and the share price at £18, investors can still buy 4imprint on a full-year 2019 price/earnings of 17.2x – undemanding for a stock showing accelerating organic growth in the mid-teens.’

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Look up the shares

  • 4imprint Group PLC (FOUR.L)
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  • Shire PLC (SHP.L)
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  • Spirent Communications plc (SPT.L)
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  • Whitbread PLC (WTB.L)
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  • William Hill PLC (WMH.L)
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