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The Expert View: Hargreaves Lansdown, Burberry, Tullow Oil

A round-up of the best analyst commentary on shares, also including Fenner and Taylor Wimpey.

Our daily round-up of analyst recommendations and commentary, featuring Hargreaves Lansdown, Burberry, Tullow Oil, Fenner and Taylor Wimpey.

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Key stats
Market capitalisation£6,785m
No. of shares out474m
No. of shares floating206m
No. of common shareholdersnot stated
No. of employees731
Trading volume (10 day avg.)1m
Turnover£292m
Profit before tax£148m
Earnings per share31.44p
Cashflow per share31.93p
Cash per share37.60p

*Correct as at 15 Jan 2014

Hargreaves’ aggressive pricing doesn’t deter analysts

News of Hargreaves Lansdown’s (HRGV.L) new pricing structure was welcomed by analysts despite it wiping at least £8 million off 2013 revenues.

Barclays analyst Daniel Garrod said the pricing, which sees customere with £250,000 of assets or less pay 0.45% a year, was more aggressive than anticipated and meant that the shift was no longer financially neutral for the platform.

However, the competitive pricing meant Hargeaves has set itself in good stead for the future when its competitors were forced to make their pricing more explicit under the retail distribution review (RDR) rules. It would also benefit from ‘superclean’ discounts given by fund groups to the platform for its bulk business.

‘We believe this is a sensible strategy to pre-empt competition from discounters before it can become more established,’ said Garrod. ‘We believe HL’s distribution and brand are very strong, resulting in it attracting large amounts of additional flows post the RDR opportunity.’

Garrod placed a target price of £15.08 on the shares and retained his ‘overweight/positive’ recommendation.

Hargreaves shares fell 4.18%, or 63, to finish at £14.45 on Wednesday.

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Key stats
Market capitalisation£10,326m
No. of shares out665m
No. of shares floating656m
No. of common shareholdersnot stated
No. of employees8867
Trading volume (10 day avg.)1m
Turnover£1,999m
Profit before tax£254m
Earnings per share56.95p
Cashflow per share83.40p
Cash per share96.44p

*Correct as at 15 Jan 2014

Digital sales keep Burberry on trend

British fashion stalwart Burberry (BRBY.L) pleased shareholders with Q3 sales that were £11 million better than forecast at £528 million.

Nomura analyst Christopher Walker said the 12% increase could be traced back to improved digital sales and a ‘brand halo effect’ from the men’s Brit Rhythm fragrance that ‘complemented a strong co-ordinated festive offer’. Chinese sales were also into double-digit growth.

However, with a good proportion of sales made overseas Burberry chief executive Angela Ahrendts warned that currency exchange rates would be ‘a significant headwind in the second half and beyond’.

Walker maintained a ‘neutral’ stock rating and a target price of £16.30.

‘In our view, growing the size of the Burberry brand will be the key to driving further modest improvements in the…[earnings] margins,’ he said. ‘While we think management change, beauty execution and Japan remain top of investors’ minds in a difficult market environment, Burberry’s digital approach and retail execution should reassure.’

Burberry shares shot up 4.63%, or 68p, to finish the day £15.37 on Wednesday.

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Key stats
Market capitalisation£7,833m
No. of shares out910m
No. of shares floating852m
No. of common shareholdersnot stated
No. of employees1415
Trading volume (10 day avg.)3m
Turnover1,426m USD
Profit before tax380m USD
Earnings per share0.42 USD
Cashflow per share0.82 USD
Cash per share0.22 USD

*Correct as at 15 Jan 2014

Tullow Oil outlook lowered despite Kenyan discoveries

Further success in Kenya for oil explorer Tullow Oil (TLW.L) has given confidence to analysts but there is still some concern over the timing of the find.

Liberum analyst Andrew Whittock placed a target price of £14.76 on the shares and maintained a buy recommendation.

He said the finds needed to be sanctioned by the Kenyan government and therefore expected a ‘small downward revision to forecasts’ but ‘retained a positive view on the share’.

Tullow management expect around 79-85 million barrels of oil equivalent per day to be produced in 2014, which is slightly lower than the Liberum prediction of 86.4, reducing cash flow forecasts.

‘The Tullow investment case is driven by a view on its ability to add new reserves and we remain optimistic, particularly if further early monetisation of assets is planned,’ said Whittock.

Tullow shares closed up 0.76%, or 6.5p, at 863p on Wednesday.

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Key stats
Market capitalisation£868m
No. of shares out194m
No. of shares floating191m
No. of common shareholdersnot stated
No. of employees5272
Trading volume (10 day avg.)0m
Turnover£821m
Profit before tax£46m
Earnings per share23.52p
Cashflow per share45.54p
Cash per share51.18p

*Correct as at 15 Jan 2014

Currency woes keep Fenner at ‘sell’

Conveyor belt speciality Fenner (FENR.L) is still a ‘sell’ for Investec as currency exchange continues to take its toll.

Analyst Michael Blogg reduced profit before tax estimates by £4 million to account for currency and lowered the target price to 380p from 390p.

‘We recently reassessed the impact of currency for Fenner, on account of sterling’s rise against the US and Australian dollars and various other currencies,’ he said. ‘Part of the year-on-year currency headwind for FY13 was already reflected in our estimates but we are adjusting by another £4 million today.’

On the positive side Blogg said as half of Fenner’s business was in North America the company has ‘longer term attractions for investors seeking exposure to rising levels of US confidence’.

Fenner shares closed the day up 0.94%, or 4.3p, at 459p on Wednesday.

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Key stats
Market capitalisation£3,816m
No. of shares out3,237m
No. of shares floating3,195m
No. of common shareholdersnot stated
No. of employees3527
Trading volume (10 day avg.)9m
Turnover£2,019m
Profit before tax£229m
Earnings per share7.01p
Cashflow per share7.07p
Cash per share5.90p

*Correct as at 15 Jan 2014

Taylor Wimpey target price up but uncertainty over capital plans remains

Jefferies has increased its target price for housebuilder Taylor Wimpey (TW.L) to 141p from 132p although capital allocation still remains the ‘elephant in the room’.

Analyst Anthony Codling increased his estimates for pre-tax profits for the next three years after the group added 10,000 more plots to its ‘strategic landbank’ and approved the purchase of 15,667 plots during 2013. He added that ‘attractive land opportunities remain’ and land bought in 2009 ‘will underpin earnings for several years to come’.

However, he said the fact that there is as yet no more detail on capital allocation plans meant ‘the capital return elephant in the room [was] obscuring a corner of the window’.

‘True to its word, the group did not provide details of its future capital allocation plans; a full update will be provided on 26 February at the full year results,’ said Codling. ‘While the update will be welcome, we believe that the shares are attractively valued before any capital plans are priced in.’

Codling maintained a ‘buy’ recommendation on the shares.

Taylor Wimpey shares dropped 1.67%, or 2p, to finish Wednesday at 117p.

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