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The Expert View: ASOS, Pearson & GKN

Our daily roundup of analyst comment on shares, including Bellway and Moneysupermarket

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Key stats
Market capitalisation£4,830m
No. of shares out83m
No. of shares floating53m
No. of common shareholdersnot stated
No. of employees2381
Trading volume (10 day avg.)m
Turnover£1,445m
Profit before tax£96m
Earnings per share41.71p
Cashflow per share79.81p
Cash per share207.72p

ASOS ‘juggernaut’ needs to drive at full speed, says Hargreaves

Pressure is on for online fashion retailer ASOS (ASOS) to continue performing and justify its lofty valuation, says Hargreaves Lansdown.

Full-year results to the end of August met expectations with sales up 27% on a constant currency basis (or 34% on a non-adjusted basis) and profit before tax leaping from £32.7 million to £80 million.

Analyst George Salmon said the company had outpaced the online market and with 135 million hits a month to its website the group was ‘fast becoming a global juggernaut’ and was investing to keep pace with demand.

ASOS is confident it can increase sales beyond the £1.9 billion generated this year from customers in the UK, Europe and US.

‘Given the vast overall potential of these markets, ASOS still has a few gears to move into before it reaches anything like top speed,’ said Salmon.

‘Perhaps no surprise then that capital expenditure is set to rise again next year. This ambition will be welcomed by investors, but with the shares trading on a lofty 59 times expected earnings, the pressure is on the group to deliver on its plans.’

The shares advanced 97p or 1.7% to £57.97 on Tuesday.

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Key stats
Market capitalisation£5,504m
No. of shares out823m
No. of shares floating813m
No. of common shareholdersnot stated
No. of employees32719
Trading volume (10 day avg.)3m
Turnover£4,552m
Profit before tax£647m
Earnings per share-286.82p
Cashflow per share-241.90p
Cash per share180.38p

Positive Pearson doesn’t impress Liberum

The first positive trading statement from Pearson (PSON) in recent years boosted shares in the education group but left Liberum underwhelmed.

Analyst Ian Whittaker, a long-standing bear of the company which cut its dividend in August, retained his ‘sell’ recommendation and target price of 330p after Pearson said the rate of decline in its core North American business had eased.

‘We are confident we are on a path to return Pearson to long-term and sustainable growth,’ chief executive John Fallon said in the update on Tuesday, sending the shares up 7.3%, or 45p, to 667p.

Whittaker was unconvinced. ‘Post-Pearson’s conference call, there is nothing to change our negative structural view on Pearson and that Pearson’s decision to improve its operating profit guidance has little substantive evidence to support such a move,’ he said.

‘Visibility is low. Q4 remains the key for full-year profitability and the heavier cycle of new editions is likely to increase uncertainty on Q4 returns even more.’ He added that management’s comments did little to suggest confidence in any longer-term trends.

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Key stats
Market capitalisation£5,272m
No. of shares out1,717m
No. of shares floating1,707m
No. of common shareholdersnot stated
No. of employees51381
Trading volume (10 day avg.)12m
Turnover£8,822m
Profit before tax£1,082m
Earnings per share14.02p
Cashflow per share39.22p
Cash per share24.26p

GKN's plight frustrates Peel Hunt

Operational problems at GKN (GKN) are annoying Peel Hunt, which believes the value of the engineer’s portfolio is not reflected in the stock’s valuation.

Analyst Harry Philips retained his ‘buy’ recommendation but reduced his target price from 535p to 500p after last week’s profits warning caused by £40 million of exceptional charges for two external claims against its North American business.

‘This is not the ideal backdrop for the new team when it begins in the new year with some issues to address,’ said Philips.

‘Our view is a somewhat frustrated one, believing that the premium organic revenue growth profile and the inherent value within the portfolio should demand a much higher multiple compared to the current 2018 price/earnings of just 9.5 times.’

Having fallen 9% on Friday when it revealed that profits this year would be only just above last year, the shares shed a penny to trade at 306p on Tuesday.

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Key stats
Market capitalisation£4,348m
No. of shares out123m
No. of shares floating121m
No. of common shareholdersnot stated
No. of employees2366
Trading volume (10 day avg.)m
Turnover£2,241m
Profit before tax£495m
Earnings per share327.96p
Cashflow per share330.44p
Cash per share48.06p

Bellway beats expectations but doesn’t impress Shore

Annual results from Bellway (BWY) may have been slightly better than expected but Shore Capital warns housebuilders face ‘stiffer headwinds’.

Analyst Robin Hardy retained his ‘hold’ recommendation and lifted his ‘fair value’ price target from £27.85 to £30.50 after the company achieved a ‘small beat’ with pre-tax profits up 12.6% to £560.7 million.

The shares gained 60p or 1.7% to £35.63.

‘We still believe that the housebuilders face stiffer headwinds than the market is factoring in,’ Hardy said. ‘Prices are weakening even before any increase in interest rates…That said, the market still believes that the housebuilders are infallible and that the current positive trading climate can run on without end.’

He said investors were underplaying the risks and overplaying the effect of supportive government policies. ‘Bellway is cheap relative to its larger peers despite the fact that it is much more ambitious and is growing faster,’ said Hardy.

‘Bellway is now a very substantial mid-cap…and we believe that this makes it a viable switch candidate out of the large cap stocks in the sector, despite the lack of absolute value.’

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Key stats
Market capitalisation£1,698m
No. of shares out536m
No. of shares floating527m
No. of common shareholdersnot stated
No. of employees598
Trading volume (10 day avg.)2m
Turnover£316m
Profit before tax£121m
Earnings per share13.40p
Cashflow per share18.41p
Cash per share8.14p

Moneysupermarket Q3 better than expected, says Numis

Concerns about energy switching impacting Moneysupermarket (MONY) in the third quarter have not materialised thanks to ‘proactive’ measures by management, says Numis Securities.

Analyst Gareth Davies retained his ‘add’ recommendation and target price of 390p after a ‘solid Q3 update’ in which the price comparison website operator expressed confidence that full-year expectations would be met.

‘Despite a comparison that included the impact of a material collective switch in the prior year the group delivered Q3 performance of -1% [in home services], a significant improvement on H1 and better than the double-digit decline we had feared could occur in Q3,’ he said.

‘Management note good growth in core energy switching. It is good to see the benefits of proactive measures put in place at the time of the H1 results coming through this quickly.’

The shares slipped 3.8p, or 1.2%, to 314.7p.

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