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The Expert View: Aviva, Reckitt Benckiser and G4S

Our daily roundup of analyst commentary on shares, also including Countrywide and Ibstock.

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If you would like to receive news alerts on any of the stocks 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£20,431m
No. of shares out4,013m
No. of shares floating3,989m
No. of common shareholdersnot stated
No. of employees29530
Trading volume (10 day avg.)9m
Turnover£55,303m
Profit before tax£2,876m
Earnings per share15.11p
Cashflow per share24.99p
Cash per share734.55p

Hargreaves Lansdown: Aviva needs to prove itself long-term

Insurer Aviva (AV) reported mixed results and Hargreaves Lansdown believes that the newly slimmed-down group needs to prove it can deliver long-term growth.

Aviva reported operating profits up 2% in 2017 to £3.1 billion driven by ‘exceptional gains’ in life insurance and fund management. The board also announced a final dividend of 19p per share, taking the full year payout to 27.4p, an 18% increase on last year.

But analyst Nicholas Hyett said it was ‘not all plain sailing’ due to deteriorating underwriting performance and climbing expenses in the life business.

‘[Chief executive] Mark Wilson’s move to simplify Aviva has done wonders,’ he said. ‘However, with the groundwork now complete the next job is to prove a slimmed down diversified insurer can deliver long-term growth as well as cash today.

‘The group’s targeting over 5% earnings growth a year from 2018, if that’s deliverable there’s scope for the already sizeable 5.8% dividend yield to swell over the years to come.’

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Key stats
Market capitalisation£40,418m
No. of shares out704m
No. of shares floating659m
No. of common shareholdersnot stated
No. of employees34700
Trading volume (10 day avg.)2m
Turnover£11,512m
Profit before tax£3,345m
Earnings per share274.92p
Cashflow per share308.67p
Cash per share301.93p

Reckitt’s Pfizer bid could be transformative, says Liberum

Liberum believes Reckitt Benckiser (RB) could pay more than GlaxoSmithKline for Pfizer’s consumer health division and that it could shake-up the consumer giant’s business.

Analyst Robert Waldschmidt reiterated his ‘buy’ recommendation but reduced the target price from £80.00 to £74.00 ‘reflecting our lowered earnings per share estimates and recent sector de-rating’. The shares rose 2.6% to £57.70 yesterday.

‘Reckitt Benckiser’s new structure may be a prelude to a split or sale of hygiene home if the group secures Pfizer’s consumer health unit,’ he said.

‘We estimate the Reckitt Benckiser can pay more than GlaxoSmithKline for Pfizer and still deliver meaningful earnings per share accretion...selling hygiene home fully funds the deal and a large buyback completing Reckitt Benckiser’s transformation.’

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Key stats
Market capitalisation£4,009m
No. of shares out1,552m
No. of shares floating1,539m
No. of common shareholdersnot stated
No. of employees592897
Trading volume (10 day avg.)4m
Turnover£7,590m
Profit before tax£583m
Earnings per share13.00p
Cashflow per share24.77p
Cash per share57.68p

G4S looks cheap, says Jefferies

Security group G4S (GFS) has missed its full-year targets but Jefferies is unconcerned as it expects momentum to return in the first half of 2018.

Analyst Kean Marden retained his ‘buy’ recommendation and target price of 330p on the shares, which fell 1.7% to 259.4p yesterday.

Full-year 2017 results came in 2% below on earnings per share and fourth quarter organic revenue growth was in line and ‘should improve materially over the next few quarters’, said Marden.

He said the investor nervousness ‘regarding cost pass-through is understandable as US wage and non-wage costs have risen over the past 18 months’ and although these inflationary costs are usually passed on to customers it is at a lag.

‘We have a ‘buy’ rating as the shares have underperformed due to disappointing organic revenue growth but momentum should recover in the first half of 2018 driven by improving emerging markets and US wage inflation,’ said Marden.

‘G4S’s price/earnings looks increasingly cheap relative to history.’

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Key stats
Market capitalisation£196m
No. of shares out238m
No. of shares floating232m
No. of common shareholdersnot stated
No. of employees10909
Trading volume (10 day avg.)m
Turnover£737m
Profit before tax£116m
Earnings per share8.03p
Cashflow per share23.26p
Cash per share20.95p

Countrywide facing two years of problems, says Peel Hunt

Peel Hunt has placed estate agent Countrywide (CWD) ‘under review’ as it believes the company will face two years of problems from the lettings fee ban coming in in 2019.

Analyst Gavin Jago placed his ‘reduce’ recommendation and target price of 115p ‘under review’ after 2017 results ‘reflected a weak performance in the sales and letting business, with the sales pipeline for 2018 significantly down on the prior year’. The shares fell 1.6% to 87.5p yesterday.

‘The balance sheet remains highly geared...and no dividend has been declared,’ he said. ‘The significantly weaker sales pipeline for 2018 implies a downgrade of up to 25% on our full year 2018 earnings forecast of £74 million.

‘While a recovery plan is being put into place, the impending 2019 lettings fee ban leaves the group facing problems for at least the next two years.’

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Key stats
Market capitalisation£1,198m
No. of shares out406m
No. of shares floating398m
No. of common shareholdersnot stated
No. of employees2683
Trading volume (10 day avg.)1m
Turnover£452m
Profit before tax£119m
Earnings per share18.00p
Cashflow per share24.44p
Cash per share7.75p

Numis downgrades Ibstock after shares strengthen

Numis has downgraded brick manufacturer Ibstock (IBST) on the back of recent share price strength.

Analyst Christen Hjorth downgraded his recommendation from ‘add’ to ‘hold’ but increased the target price from 288p to 310p. The shares were trading at 290p yesterday.

‘Ibstock reported full-year results that were ahead of our forecasts, primarily driven by a lower than expected tax charge,’ he said.

‘Looking forward, management expects another year of progress and, based on this, we increase our 2018 earnings per share forecast by 2% and 2019 by 6%.’

The announcement of a supplementary dividend policy also adds 70% to Hjorth’s dividend per share estimate for 2018 and 2019.

‘Based on this, we increase our target price to 310p, which represents a 2019 price/earnings ratio of 13x and yield of 5.4%. However, following recent share price strength, our recommendation moves to “hold”,’ he said.

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