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The Expert View: Debenhams, AstraZeneca and Stagecoach

Our daily roundup of analyst commentary on shares, also including Ocado and Sage.

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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£536m
No. of shares out1,228m
No. of shares floating1,128m
No. of common shareholdersnot stated
No. of employees8392
Trading volume (10 day avg.)2m
Turnover£2,342m
Profit before tax£86m
Earnings per share7.00p
Cashflow per share15.84p
Cash per share4.59p

Debenhams dividend at risk, says Peel Hunt

Debenhams’ (DEB) dividend looks ‘at risk’ although the high street stalwart is making a good start on a recovery, says Peel Hunt.

Analyst John Stevenson retained his ‘hold’ recommendation and target price of 55p after an analyst trip to a new store opening in Stevenage. Stevenson said new chief executive Sergio Bucher ‘has propelled what was planned to be a mid-table store towards the top of the league table’, which partly ‘reflects an underperforming core’.

‘It also illustrates that the existing product can perform with better merchandising and focus,’ he said.

‘A single new store won’t change hearts and minds, but for what needs to be a like-for-like-driven recovery, this looks like a fairly solid start.’

In the meantime, Stevenson is more concerned about the impact on the dividend.

‘With profits and free cashflow already under pressure, the dividend looks at risk in our model if Debenhams embarks on a much needed investment programme,’ he said.

At the time of writing the shares were trading down 0.4%, or 0.1p, at 43p.

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Key stats
Market capitalisation£59,924m
No. of shares out1,266m
No. of shares floating1,262m
No. of common shareholdersnot stated
No. of employees59700
Trading volume (10 day avg.)4m
Turnover16,924m USD
Profit before tax2,574m USD
Earnings per share2.03 USD
Cashflow per share3.32 USD
Cash per share3.43 USD

Berenberg hails AstraZeneca’s lung cancer drug trial success

AstraZeneca’s (AZN) latest trial of its lung cancer drug Tagrisso has led Berenberg to upgrade its sales forecasts.

Analyst Alistair Campbell reiterated his ‘buy’ recommendation and increased the target price from £55.00 to £58.00 after the ‘Flaura’ trial of Tagrisso was a success.

‘Following the publication of the Flaura trial, which tested Tagrisso in first-line lung cancer, we are revising our long-term forecasts,’ he said.‘We now believe Tagrisso can reach sales of $5 billion by 2023, up from $3 billion previously. This underpins a stronger oncology-driven turnaround at Astra and lifts medium-term earnings by 7%.’

He is now forecasting AstraZeneca’s oncology franchise to grow to $11 billion in 2023 from $4.2 billion today ‘and it will become a much bigger contributor to sales’ and ‘as a result it should have a positive impact on Astra’s margin structure’.

At the time of writing the shares were trading up 0.3%, or 15p, at £47.22.

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Key stats
Market capitalisation£958m
No. of shares out573m
No. of shares floating416m
No. of common shareholdersnot stated
No. of employees39723
Trading volume (10 day avg.)2m
Turnover£3,941m
Profit before tax£32m
Earnings per share5.52p
Cashflow per share31.33p
Cash per share54.62p

Liberum upgrades Stagecoach despite risks

Liberum has upgraded Stagecoach (SGC) as it believes there is ‘scope for a deal’ to reduce some of the pressure on the group.

Analyst Gerald Khoo upgraded his recommendation from ‘sell’ to ‘hold’ with a target price of 155p on the stock, which was trading up 4.5%, or 7p, at 166p at the time of writing.

He said the business ‘still faces challenges’ in the current trading environment and re-regulation in parts of the regional bus industry.

‘The underperformance of the East Coast rail franchise continues to dominate sentiment,’ he said. ‘In our view, there is scope for a deal to relieve the pressure on the group, although the politics are difficult to navigate.’

However, he said the risks were ‘evenly balanced at the current valuation, with our forecasts showing a dividend yield of 7.7% matching the price/earnings of 7.7x’.

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Key stats
Market capitalisation£1,871m
No. of shares out630m
No. of shares floating417m
No. of common shareholdersnot stated
No. of employees10930
Trading volume (10 day avg.)2m
Turnover£1,271m
Profit before tax£12m
Earnings per share1.96p
Cashflow per share11.90p
Cash per share7.70p

Licensing deals is the real test for Ocado, says Hargreaves

Ocado (OCDO) may be chalking up double-digit revenue growth but the real test is in how many software licensing deals it can secure, says Hargreaves Lansdown.

Shares in the online supermarket rose 1.8% on the back of a third quarter trading statement that showing group revenue up 14% to £344.5 million.

A 1.2% decline in average order size to £106.25 was more than offset by a 16% increase in the number of orders.

Ocado chief executive Tim Steiner said costs would rise in the short term as the group invested to keep up with orders.

Analyst George Salmon said the debate around the shares ‘doesn’t concern the speed of organic growth’.

‘The question is rather how many licensing deals Ocado can secure for others to use its software, and indeed how quickly,’ he said.

‘Such deals would have a transformative impact, and back in June Ocado announced it had already got one over the line. With the group trading on a stratospheric price to earnings ratio, the market will be looking for more of the same to justify Ocado’s lofty valuation.’

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Key stats
Market capitalisation£7,625m
No. of shares out1,081m
No. of shares floating1,076m
No. of common shareholdersnot stated
No. of employees13741
Trading volume (10 day avg.)3m
Turnover£1,439m
Profit before tax£188m
Earnings per share17.35p
Cashflow per share22.75p
Cash per share24.49p

Sage Group starting to look attractive, says Numis

Business software maker Sage Group (SGE) is starting to look more attractive as it begins to deliver 8% organic growth despite a currency headwind, says Numis.

Analyst David Toms retained his ‘add’ recommendation and target price of 813p on the stock, which was trading up 0.3%, or 2p, at 705p at the time of writing.

Toms said that as Sage approached its year-end in September he had updated forecasts to factor in a ‘modest currency headwind’ in 2018.

‘Despite July’s weak third quarter and dilutive acquisition of Intacct, we remain positive on Sage. In our view, as the company starts to deliver 8%-plus organic growth the market is likely to view the 20x full-year 2019 price/earnings as attractive,’ he said.

‘Furthermore, the Intacct acquisition partially fills a significant product hole… we see a possibility that this will prove the kind of acquisition that we look back on as genuinely transformational.’

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