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The Expert View: Wood Group, Tate & Lyle and JLT

Our daily roundup of analyst commentary on shares, also including Mattioli Woods and Clarkson.

by Michelle McGagh on Jan 09, 2018 at 05:00

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Key stats
Market capitalisation£4,660m
No. of shares out678m
No. of shares floating648m
No. of common shareholdersnot stated
No. of employees25531
Trading volume (10 day avg.)2m
Turnover3,037m USD
Profit before tax265m USD
Earnings per share0.05 USD
Cashflow per share0.35 USD
Cash per share1.12 USD

Jefferies warns on Wood Group divi cut

Jefferies has warned of the risk of a dividend cut at oil services company Wood Group (WG) as it struggles to reduce its debt.

Analyst Mark Wilson retained his ‘underperform’ recommendation and target price of 500p on the shares, which edged 1.6p lower to 687.8p yesterday.

‘We see an increasing risk of a dividend cut,’ he said. ‘Our estimates now show the proforma company unable to meet its net debt to earnings target of less than 1.5x by 2020 – a dividend cut would obviously help.’

He said Wood Group would have to choose between the ‘dividend or deleverage or deals’ as you ‘can’t have it all’.

‘Many will argue that cost synergies or improving market conditions will prove our estimates too bearish,’ said Wilson. ‘We believe the opposite is the greater risk and our operating cashflow projects will actually see downward pressure from one-off or exceptional costs or simply from lower growth as disposals and less bolt-on mergers and acquisitions takes its toll.’

Key stats
Market capitalisation£3,189m
No. of shares out465m
No. of shares floating457m
No. of common shareholdersnot stated
No. of employees4146
Trading volume (10 day avg.)1m
Turnover£2,753m
Profit before tax£437m
Earnings per share54.12p
Cashflow per share85.74p
Cash per share56.17p

Tate & Lyle in a sweet spot, says Liberum

Liberum is expecting Tate & Lyle (TATE) to benefit from US president Donald Trump’s need to protect American farming on the back of North American Free Trade Agreement (Nafta) renegotiation.

Analyst Robert Waldschmidt retained his ‘buy’ recommendation and target price of 850p on the shares ahead of Trump’s speech at the American Farm Bureau convention.

‘The president’s speech comes ahead of a contentious sixth round of Nafta discussions and Tate’s trading statement,’ he said. ‘We expect Trump will stress the need to protect American farming interests in Nafta’s renegotiation and the looming expiry of the farm bill on 30 September.

‘High fructose corn syrup prices are trending 5% higher… highlighting the potential for a positive sweetener pricing round. Tate shares are attractive, trading on 2018 price/earnings of 13.5x and 4.2% dividend yield, a 15% price/earnings and 20% enterprise value/earnings discount to closest peer Ingredion.’

The shares were down 1.9% at 686.2p yesterday.

Key stats
Market capitalisation£3,178m
No. of shares out219m
No. of shares floating120m
No. of common shareholdersnot stated
No. of employees10499
Trading volume (10 day avg.)m
Turnover£1,261m
Profit before tax£233m
Earnings per share37.77p
Cashflow per share65.05p
Cash per share482.51p

Earnings growth to drive JLT shares in 2018, says Barclays

Reinsurance broker Jardine Lloyd Thomas (JLT) rallied in 2017 and Barclays believes earnings growth will push the stock up further this year.

Analyst Alan Devlin retained his ‘overweight’ recommendation and increased the target price from £14.08 to £14.80. The shares rose 3.4% to £14.52 yesterday.

‘JLT rallied 40% in 2017, making it one of the best performing European insurance stocks and outperforming the sector total return of 12%, as the company was helped by both internal and external tailwinds,’ he said.

‘The stock was helped by the improving outlook for insurance pricing, which we had not anticipated, but also helped by tangible evidence of the potential of the US investment and the turnaround in the UK employee benefits business.’

He added that two-thirds of the rally was driven by a rerating and one third by earnings growth.

‘While the rerating is justified, we believe it will be earnings growth that will drive the stock from here,’ said Devlin.

Key stats
Market capitalisation£159m
No. of shares out20m
No. of shares floating12m
No. of common shareholdersnot stated
No. of employees270
Trading volume (10 day avg.)m
Turnover£23m
Profit before tax£6m
Earnings per share19.14p
Cashflow per share25.28p
Cash per share44.04p

Mattioli Woods valuation still too high, says Shore Capital

Pensions administrator and financial adviser Mattioli Woods (MTW) is a strong business but Shore Capital is still concerned that its valuation is too high.

Analyst Paul McGinnis retained his ‘hold’ recommendation and said he would ‘regard any price under 750p as a better entry/top-up point’. The shares rose 1% to 785p yesterday.

‘We think Mattioli Woods is a very high quality business with strong management executing a clearly communicated vertical integration strategy in a structurally growing advice sector,’ he said.

‘Our issue over the last year has been valuation. Our last published fair value of 785p was set in September 2017… it is based on applying a subjective 25% quality premium to our standard wealth manager forward sector price/earnings of 16.5x.

‘While the shares have retreated from 858p… they are not yet back to a level where we would be tempted to take a more positive short-term stance. Therefore we stick with our “hold” stance but with the potential for upgrades.’

Key stats
Market capitalisation£901m
No. of shares out30m
No. of shares floating7m
No. of common shareholdersnot stated
No. of employees1079
Trading volume (10 day avg.)m
Turnover£238m
Profit before tax£36m
Earnings per share89.76p
Cashflow per share105.42p
Cash per share865.12p

Clarkson on The Share Centre’s radar

Shipping services provider Clarkson (CKN) is offering investors consistent dividend growth and a market-leading position within global shipping, says The Share Centre.

Analyst Helal Miah retained his ‘buy’ recommendation on the stock and made it his share of the week after a trading update where the group reiterated its full-year results would be in line with expectations despite its security systems suffering a breach at the back end of last year.

Miah said it provided ‘a significant role in the movement of commodities and finished goods around the world’ as well as being a ‘leading provider of specialist services… operating through four divisions; broking, finance, support and research’.

‘The broking division accounts for the majority of revenue, but in these difficult times, investors can be reassured that the group can benefit from its three other divisions, as a result of clients continually having to restructure and take advantage of its specialist services,’ he said.

The shares rose 5p to £29.90 yesterday.

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Look up the shares

  • John Wood Group PLC (WG.L)
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  • Tate & Lyle PLC (TATE.L)
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  • Jardine Lloyd Thompson Group PLC (JLT.L)
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  • Mattioli Woods PLC (MTWL.L)
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  • Clarkson PLC (CKN.L)
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