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The Expert View: EasyJet, Pearson and Aviva

A roundup of analyst recommendations and comments, also including Associated British Foods and London Stock Exchange.

Our daily round-up of analyst recommendations and commentary, featuring EasyJet, Pearson, Aviva, Associated British Foods, and London Stock Exchange.

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Key stats
Market capitalisation£6,700m
No. of shares out397m
No. of shares floating245m
No. of common shareholdersnot stated
No. of employees8343
Trading volume (10 day avg.)1m
Turnover£4,258m
Profit before tax£398m
Earnings per share100.00p
Cashflow per share128.14p
Cash per share311.59p

*Correct as at 23 Jan 2014

Investec downgrades EasyJet on poor 2014 outlook

Investec has downgraded EasyJet (EZJ.L) from a ‘buy’ to a ‘hold’ as the shares have become ‘fully valued’.

Investec analyst James Hollins said despite good Q1 results the ‘group has guided to an H1 loss in the range of £70-90 million’ meaning the shares were ‘fully valued’.

‘EasyJet has been our key pick in the airlines sector, delivering reliable and strong earnings growth via aggressive market share gains from network carriers and driving higher yields from a combination of additional business customers and the roll-out of allocated seating,; he said. ‘We continue to project a mix of mid-term c14% earnings growth and cash returns, although the FY14 outlook…lead us to move to hold despite a rise in our price target to £17.50p.’

At the time of writing, shares were down 2.78%, or 48p, at £16.94.

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Key stats
Market capitalisation£9,737m
No. of shares out819m
No. of shares floating803m
No. of common shareholdersnot stated
No. of employees42980
Trading volume (10 day avg.)2m
Turnover£5,059m
Profit before tax£268m
Earnings per share33.27p
Cashflow per share72.99p
Cash per share132.35p

*Correct as at 23 Jan 2014

Pearson disappoints with fears over restructuring costs

Education company Pearson (PSON.L) disappointed investors and analysts with a poor trading statement.

Liberum analyst Ian Whittaker maintained his ‘sell’ recommendation and placed a target price of £10.50p on the shares as restructuring costs hit not only FY13 numbers but look like to hit FY14 figures too.

Pearson has had little joy in North America, which Whittaker said ‘is challenging’, and while emerging markets growth was strong, development markets were weak.

‘For FY14…it looks like Pearson is now guiding to net restructuring costs of £50 million vs. the suggested positive benefit,’ said Whittaker. ‘While Pearson is still saying 2015 will be a growth year, the deeper restructure charges, similar to what we have seen in other media sectors in the past that have been structurally challenged –suggest the structural pressures are accelerating.’

At the time of writing the shares had plummeted 7.7%, or 100p, to £11.98.

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Key stats
Market capitalisation£13,880m
No. of shares out2,947m
No. of shares floating2,919m
No. of common shareholdersnot stated
No. of employees33122
Trading volume (10 day avg.)6m
Turnover£43,152m
Profit before tax£-326m
Earnings per share-11.20p
Cashflow per share-9,999,999.00p
Cash per share784.19p

*Correct as at 23 Jan 2014

Another departure confirms Aviva as ‘sell’ for Shore Capital

Shore Capital has reiterated its ‘sell’ recommendation for Aviva (AV.L) after the shock departure of chief financial officer Pat Regan.

Analyst Eamonn Flanagan placed a target price of 477p on the shares after Regan became the latest executive to leave the insurer.

Regan was well liked by investors and employees but is moving to Australia to become CFO at business insurer QBE. It is believed that Regan was disappointed that he was overlooked for the chief executive role last year which went to Mark Wilson.

‘Regan is the latest in a growing list of exits from Aviva, which, to us, is likely to impact operating performance in the coming years,’ said Flanagan. ‘We reiterate our ‘sell’ recommendation on the stock, struggling to justify the material yield discount which the shares trade on compared to Legal & General [which is rated a ‘buy’].’

At the time of writing shares were down marginally 0.26%, or 1.2p, at 476p.

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Key stats
Market capitalisation£21,775m
No. of shares out792m
No. of shares floating338m
No. of common shareholdersnot stated
No. of employees112652
Trading volume (10 day avg.)1m
Turnover£13,315m
Profit before tax£591m
Earnings per share74.81p
Cashflow per share147.98p
Cash per share45.73p

*Correct as at 23 Jan 2014

Panmure dismisses Primark IPO rumours

Associated British Foods (ABF.L) has seen its flagship Primark brand attract rumours of an stock market flotation, or IPO, but Panmure doubts the validity of the story.

News that ABF is considering floating Primark saw shares increase 4.2% but Panmure analyst Graham Jones has maintained his ‘hold’ recommendation on the shares.

He thinks that an IPO would go against ABF’s stated intentions for the clothing brand and that Primark’s roll-out across Europe will drive a decade of growth for ABF.

‘We note with puzzlement a report in the Daily Mail (and repeated on Reuters) attributing the 4.2% rise in the share price yesterday to vague rumours that the company s considering floating Primark,’ said Jones. ‘In our view this is completely without substance and contrary to ABF’s stated position on Primark. We would caution against buying ABF shares on an assumption that there will be any change in ABF’s 100% ownership of Primark.’

At the time of writing the shares stood at £27.59 but Jones did not place a target price on them.

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Key stats
Market capitalisation£5,084m
No. of shares out271m
No. of shares floating208m
No. of common shareholdersnot stated
No. of employees2013
Trading volume (10 day avg.)0m
Turnover£853m
Profit before tax£217m
Earnings per share79.02p
Cashflow per share125.53p
Cash per share164.59p

*Correct as at 23 Jan 2014

Numis puts LSE under review on valuation concerns

Numis analysts have placed shares in the London Stock Exchange (LSE.L) under review from ‘hold’ as they await an expected upgrade to forecasts.

Analyst James Hamilton said the shares in the exchange are not cheap but the momentum is strong and he expected to upgrade revenue forecasts.

‘We continue to believe the LSE offers good long term value and we think the group has done well in diversifying its base of assets, improving its strategic position,’ he said. ‘The shares have run a long way recently and while we continue to believe in the LSE strategy we do not see value at this time.’

He added the regulatory uncertainty remains but operating conditions had started to improve.

At the time of writing shares were up 1.46%, or 27p, at £18.81. Hamilton’s price target is under review.

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Profile: The opportunity set that attracted Brett Williams to wealth management

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