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The Expert View: Ashmore, International Personal Finance & Mite

Our daily roundup of analyst commentary on shares, including Spire Healthcare and 3i.

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Key stats
Market capitalisation£2,109m
No. of shares out707m
No. of shares floating380m
No. of common shareholdersnot stated
No. of employees266
Trading volume (10 day avg.)2m
Turnover£212m
Profit before tax£128m
Earnings per share18.08p
Cashflow per share18.93p
Cash per share82.66p

Peel Hunt upgrades Ashmore as emerging market sentiment revives

Peel Hunt upgraded its rating for emerging markets fund manager Ashmore Group (ASHM) despite ‘disappointing’ second quarter results after the US election.

Analyst Stuart Duncan lifted his recommendation from ‘reduce’ to ‘hold’ but lowered his share price target from 330p to 300p after the company revealed assets under management fell $2.4 billion to $52.2 billion in the last three months of 2016.

The dollar spike and bond market slump after Donald Trump’s victory hurt Ashmore, with the value of its funds falling by $1.7 billion and investors withdrawing a further $0.7 billion.

However, having fallen heavily in recent months, the shares yesterday jumped 6.6%, or 18p, to 302p after chief executive Mark Coombs said the election effect had been short-lived and that investor sentiment was improving. ‘The combination of attractive absolute and relative returns, accelerating GDP growth, and low allocations all support the expectation of further strong performance in 2017 and a return to the improving flow trend seen most of 2016,’ he said.

Duncan responded: ‘The Q2] update was modestly disappointing, given the reported outflows of $0.7 billion. However, the loss of a small number of larger mandates to some extent masks the continuing improvement in investor sentiment. With the shares now at a more reasonable valuation, we move our recommendation to “hold” from “reduce”.’

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Key stats
Market capitalisation£367m
No. of shares out223m
No. of shares floating219m
No. of common shareholdersnot stated
No. of employees7284
Trading volume (10 day avg.)2m
Turnover£735m
Profit before tax£63m
Earnings per share26.55p
Cashflow per share33.09p
Cash per share18.10p

Shore Capital ‘reviews’ IPF after Poland’s clampdown

Shore Capital is concerned about the impact of a clampdown on lending in Poland will have on consumer credit company International Personal Finance (IPF).

Analyst Gary Greenwood placed his recommendation and target price ‘under review’ after newswire Bloomberg reported the Polish Justice Ministry planned to limit the cost of cash loans for borrowers and increase consumer protection.

‘If the proposal is dropped, we would expect to see a sharp bounce in the shares, although we think they are unlikely to trade back to the 285p closing price on 8 December, being the day before the proposal was published, given the subsequent announcement of an investigation into the group’s tax affairs in Poland, which the group is challenging,’ said Greenwood.

‘However, if the proposal is ultimately enacted in its current form then we think the Polish business will be forced to close, which is likely to result in significant closure costs, pressure on banking covenants and a further sharp fall in the shares. Until we have greater clarity around the potential outcome, our recommendation remains “under review”.’

The shares closed 2.6% or 4.5p down at 167.5p. They have nearly halved in the past six months.

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Key stats
Market capitalisation£744m
No. of shares out360m
No. of shares floating326m
No. of common shareholdersnot stated
No. of employees62674
Trading volume (10 day avg.)2m
Turnover£2,232m
Profit before tax£76m
Earnings per share21.06p
Cashflow per share30.90p
Cash per share25.50p

Mitie accounts probe looks poor, says Liberum

Outsourcing group Mitie (MTO) faces more problems and potential downgrades, says Liberum, after boss Phil Bentley ordered an external review of the company’s accounting systems.

Liberum analysts retained a ‘sell’ recommendation and 185p share price target after the Sunday Times reported Bentley had sanctioned a probe into the leap in non-current trade and other receivables, which jumped from £58.5 million to £86 million last year.

‘[The increase in receivables] related to revenues that have been recognised but have not yet been billed,’ said Liberum. ‘A bullish interpretation is that Mitie has been slow to bill its customers as its accounting systems are poor, and we expect that there is indeed more that Bentley can do here.

‘A more likely interpretation, in our view, is that Mitie has historically over reported its revenues and margins.’ It added that the group’s net debt was too high. The shares dropped 6.5p or 3% to 207.4p.

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Key stats
Market capitalisation£1,102m
No. of shares out352m
No. of shares floating272m
No. of common shareholdersnot stated
No. of employees4908
Trading volume (10 day avg.)1m
Turnover£311m
Profit before tax£9m
Earnings per share2.68p
Cashflow per share6.04p
Cash per share-9,999,999.00p

Berenberg: be patient with Spire

Investors in Spire Healthcare (SPI) will need to be patient and ride out disappointing trading as Berenberg believes growth will return to the independent hospital group.

Analyst Tom Jones retained his ‘buy’ recommendation but reduced his share price target price from 395p to 360p. ‘Last week Spire issued a pre-close trading update which revealed that although 2016 revenues of c.£925 million are slightly better than consensus expectations, delays in the reorganisation of the St Anthony’s hospital in south-west London negatively affected ebitda [earnings before interest, tax, depreciation and amortisation] such that the likely result of c£162 million is around 3% below the then consensus of £167 million,’ he said.

However, once this site is excluded, Jones said revenues grew 5% and earnings 6% in 2016. ‘The key message is that without the problems at St Anthony’s, which manifested themselves very late in the year and should prove temporary, Spire would have met both revenue and ebitda expectations, rather than just revenues,’ said Jones.

The shares dipped 2.2p to 313p.

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Key stats
Market capitalisation£5,845m
No. of shares out1,020m
No. of shares floating1,008m
No. of common shareholdersnot stated
No. of employees15433
Trading volume (10 day avg.)3m
Turnover£6,684m
Profit before tax£70m
Earnings per share6.87p
Cashflow per share17.66p
Cash per share80.23p

Jefferies upgrades active 3i

Jefferies has upgraded private equity group 3i Group (III) after a recent uptick in investment activity.

Analyst Matthew Hose raised his recommendation from ‘underperform’ to ‘hold’ on the investment company and commented: ‘We find 3i’s recent spate of investment activity has helped favourably tilt key portfolio sensitivities, accrete returns, and reduce reinvestment risk.’

‘Although 3i’s lack of transparency on the valuations of holdings and the single-year measurement period on the performance fee remain sources of reticence, the changing portfolio dynamic, together with a now lower premium to net asset value, means we upgrade our recommendation.

‘3i’s shares currently trade on a 12.1% premium to our net asset value. The risk to our view is disposals changing the composition of the portfolio.’ The shares softened 2p to 723p.

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