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The Expert View: Bellway, Next and Ocado

Our daily roundup of analyst commentary on shares, also including Devro and Volution.

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Key stats
Market capitalisation£3,879m
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

Numis: Bellway is too cheap

Past investment is paying off at house builder Bellway (BWY) and Numis believes the shares are ‘too cheap’.

Analyst Chris Millington reiterated his ‘buy’ recommendation and target price of £39.80 on the stock following an interim report that showed profit before tax was up 16.6% and the group increased the dividend from 28p to 48p.

‘Bellway’s interims show the benefit of past investment which is producing strong top-line growth,’ he said.

‘With the group still seeing strong demand, we think that the risk to full-year numbers is on the upside and we therefore reiterate our “buy” rating and argue that the shares are materially too cheap.’

The shares jumped 3.5% to £31.56 yesterday.

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Key stats
Market capitalisation£6,811m
No. of shares out143m
No. of shares floating136m
No. of common shareholdersnot stated
No. of employees30525
Trading volume (10 day avg.)1m
Turnover£4,097m
Profit before tax£943m
Earnings per share438.14p
Cashflow per share517.24p
Cash per share33.80p

Weather puts pressure on Next, says Jefferies

Next (NXT) reported strong Christmas trading but the unfavourable weather will impact the outlook for this year, says Jefferies.

Analyst Niraj Amin retained his ‘hold’ recommendation and target price of £52.00 on the shares, which rose 43p to £47.52 yesterday.

‘Following Next’s better-than-expected Christmas trading upgrade we forecast a solid end to full-year 2018,’ he said. ‘However, given the unfavourable weather of recent weeks, we expect the 2018/19 outlook at the full-year 2018 results [on 23 March] to balance: near term weather-driven challenges versus a more constructive macro as external headwinds ease in the second half.’

Amin retained his growth outlook for the retailer but said he recognised ‘there could be downside depending on how well Next has managed the tough weather conditions’.

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Key stats
Market capitalisation£3,775m
No. of shares out663m
No. of shares floating453m
No. of common shareholdersnot stated
No. of employees12799
Trading volume (10 day avg.)4m
Turnover£1,464m
Profit before tax£85m
Earnings per share0.16p
Cashflow per share11.53p
Cash per share24.54p

Ocado transformation continues despite big freeze

The cold snap could cost Ocado (OCDO) £4 million in sales but despite this, Hargreaves Lansdown said the online supermarket was in the midst of a transformation.

Ocado’s first quarter trading statement showed sales were behind last year, with blame placed on disruption caused by the ‘Beast from the East’. The shares slipped 4p to 568.5p on the news.

Analyst George Salmon said despite the £4 million of lost sales, ‘there’s no getting away from the fact recent months have been transformational’ thanks to two new licencing agreements with international retailers.

‘Getting these partnerships over the line has ensured Ocado outperformed every other share in the FTSE 250 over the last six months, with the entire FTSE 100 trailing in its wake,’ said Salmon.

‘Looking forward, we’ll need to see more progress, and in all likelihood, more deals. To maximise its chances of getting more partners to sign on the dotted line, Ocado will need to show it can get the huge distribution centre at Erith up and running smoothly, while effectively deploying the £143 million raised in the recent share placing will also be a priority.’

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Key stats
Market capitalisation£334m
No. of shares out167m
No. of shares floating162m
No. of common shareholdersnot stated
No. of employees2265
Trading volume (10 day avg.)m
Turnover£257m
Profit before tax£64m
Earnings per share9.25p
Cashflow per share24.67p
Cash per share6.47p

Inflection point: Shore Capital upgrades Devro

Shore Capital has upgraded Devro (DVO) as it believes full-year results from the sausage skin maker represent an inflection point.

Analyst Darren Shirley upgraded his recommendation from ‘hold’ to ‘buy’ on the stock, which fell 1.7% to 197.6p yesterday.

‘Devro has had a challenging couple of years,’ he said. ‘However, we believe full-year 2017 represented an inflection point, with a welcome reduction in net debt and leverage expected, by us, to be a sign of things to come.’

He added that management was showing ‘more confidence in its ability to deliver volume growth and margin recovery’ and that the shares traded with a ‘healthy dividend yield of 4.4%’.

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Key stats
Market capitalisation£403m
No. of shares out199m
No. of shares floating189m
No. of common shareholdersnot stated
No. of employees1460
Trading volume (10 day avg.)m
Turnover£185m
Profit before tax£39m
Earnings per share6.97p
Cashflow per share15.72p
Cash per share7.30p

Berenberg expects high margins and more acquisition from Volution

Ventilation products supplier Volution (FAN) recently made its first acquisition outside Europe and Berenberg expects more acquisitions and high margins to continue.

Analyst Robert Chantry retained his ‘buy’ recommendation and increased the target price from 220p to 250p after a ‘decent set’ of first-half results that also announced the acquisition of New Zealand-based Simx. The shares were up 2% at 204p yesterday.

‘Despite the challenging UK repair, maintenance, and improvement markets, Volution has benefited from its increasingly diversified model and has continued to grow strongly since its initial public offering in July 2014,’ he said.

‘Despite certain headwinds, we still like the stock for its high margins, consistent delivery of targets and stated intention of management to continue consolidating fragmented ventilation markets through acquisition.’

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