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The Expert View: AstraZeneca, Pearson and Rathbones

Our daily roundup of analyst commentary on shares, also including St Modwen and Jackpotjoy.

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If you would like to receive news alerts on any of the stock mentioned in The Expert View, click on the star icons below to add them to your favourites.

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Key stats
Market capitalisation£55,939m
No. of shares out1,266m
No. of shares floating1,257m
No. of common shareholdersnot stated
No. of employees59700
Trading volume (10 day avg.)2m
Turnover17,871m USD
Profit before tax2,719m USD
Earnings per share2.15 USD
Cashflow per share3.51 USD
Cash per share3.62 USD

Liberum: upside at AstraZeneca without Mystic

AstraZeneca (AZN) shares slumped last month after its Mystic key lung cancer drug trial disappointed, but Liberum believes there is another upside without it.

Analyst Roger Franklin rated the shares a ‘buy’, with a £48 price target, having previously placed them under review. The shares fell 35p to £44.12 yesterday.

‘There remains much complexity and uncertainty around Mystic,’ he said. ‘But the Astra investment case is much more straightforward. The shares are worth c.£48 assuming zero for Mystic, pointing to 8% upside. If Mystic works…it’s worth another £3 to £10 per share.’

However, he added that ‘with c.35% of the company’s value in the pipeline this remains a high risk biotech story with expectations high’, describing the shares as a ‘long-term buy on risk/reward.’

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Key stats
Market capitalisation£5,006m
No. of shares out823m
No. of shares floating812m
No. of common shareholdersnot stated
No. of employees32719
Trading volume (10 day avg.)3m
Turnover£4,552m
Profit before tax£-2,337m
Earnings per share-286.82p
Cashflow per share-241.90p
Cash per share180.38p

Pearson could face ‘further weakness,’ warns Jefferies

Structural issues continue to dog educational publisher Pearson (PSON) despite the cost reduction plan to save £300 million and sale of its global education (GEDU) unit.

Analyst Tamsin Garrity reiterated her ‘underperform’ recommendation but increased the target price from 511p to 523p. The shares rose 2.3% to 619.1p yesterday.

‘We reiterate our “underperform” rating underpinned by continued concern around the structural issues facing the education market and the disruption the transition to digital has on top line and margins given price deflation,’ she said.

‘We incorporate the cost reduction plan, bond repurchase and sale of GEDU.’

Garrity added the shares traded on 11.8x 2018 earnings per share and ‘we remain cautious as we argue the structural issues facing Pearson could lead to further weakness’.

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Key stats
Market capitalisation£1,440m
No. of shares out51m
No. of shares floating50m
No. of common shareholdersnot stated
No. of employees1123
Trading volume (10 day avg.)m
Turnover£272m
Profit before tax£38m
Earnings per share78.24p
Cashflow per share120.72p
Cash per share2,122.74p

Peel Hunt: ‘clear benefits’ to Rathbones deal

Rathbones (RAT) has confirmed it is in merger talks with Smith & Williamson (S&W), a deal which Peel Hunt said would bring ‘clear benefits’.

Analyst Stuart Duncan retained his ‘hold’ recommendation and target price of £26.30 on the shares, which fell 7p to £27.63 yesterday. A merger would create a UK-listed wealth manager with close to £60 billion of assets thanks to S&W’s scale.

Reports suggest S&W is worth up to £600 million but it is not yet known which parts of the business would be included in a transaction.

‘This has the potential to be a transformative deal for Rathbones, subject to the many moving parts in actually concluding a transaction,’ said Duncan.

‘Like any combination of this size, there will be the usual integration risks, given the comparable scale of the two constituent parts. At this point we are not adjusting our target price or recommendation as there is no certainty that a deal will be concluded, although there are clear benefits in the event that there is a successful outcome to the current discussions.’

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Key stats
Market capitalisation£782m
No. of shares out222m
No. of shares floating182m
No. of common shareholdersnot stated
No. of employees345
Trading volume (10 day avg.)m
Turnover£288m
Profit before tax£53m
Earnings per share22.05p
Cashflow per share22.42p
Cash per share1.89p

St Modwen sales will accelerate developments, says Numis

Property developer St Modwen (SMP) has completed the sale of Nine Elms Square in London, which Numis said would support plans to accelerate developments.

Analyst Chris Millington retained his ‘buy’ recommendation and target price of 432p on the shares, which rose 2.3% to 352.7p yesterday.

The group will take cash proceeds of £190 million from the sale, which is in line with book value.

‘In the first instance these proceeds will be used to reduce leverage substantially, but it will also be key in supporting management’s plans to accelerate development activities across its substantial land bank,’ said Millington.

‘We think this completion materially reduces the perceived risk surrounding St Modwen’s net asset value and highlights management’s ability to successfully undertake/complete large complex regeneration schemes.’

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Key stats
Market capitalisation£561m
No. of shares out74m
No. of shares floating52m
No. of common shareholdersnot stated
No. of employees243
Trading volume (10 day avg.)m
Turnover£269m
Profit before tax£-41m
Earnings per share-55.13p
Cashflow per share21.01p
Cash per share93.84p

Berenberg: buy ‘seriously undervalued’ Jackpotjoy

Berenberg has initiated coverage of ‘seriously undervalued’ Jackpotjoy (JPJ) believing concerns over pricing of the digital bingo company are overdone.

Analyst Roberta Ciaccia initiated coverage with a ‘buy’ and target price of £10.00 on the stock, which rose 3.4% to 763p yesterday on the news.

‘Jackpotjoy, global market leader in digital bingo-led products and listed on the London Stock Exchange since January, is pricing in concerns that are overdone,’ said Ciaccia.

‘Solid top-line growth and a demonstrable deleveraging story should warrant a re-rating of the shares.’

Ciaccia added that the shares were ‘seriously undervalued, in absolute terms and versus peers’.

‘Jackpotjoy currently trades at the bottom of its listed gaming peer group on all metrics. At less than 7x price/earnings 2018-2019…we think the market is completely ignoring the company’s safe business profile and impressive cash generation capability.’

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