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The Expert View: Kingfisher, Thomas Cook and SSP

Our daily roundup of analyst commentary on shares, also including Countryside Properties and Charles Stanley.

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Key stats
Market capitalisation£6,918m
No. of shares out2,167m
No. of shares floating2,158m
No. of common shareholdersnot stated
No. of employees77000
Trading volume (10 day avg.)12m
Turnover£11,225m
Profit before tax£1,046m
Earnings per share26.96p
Cashflow per share38.14p
Cash per share35.49p

Jefferies upgrades Kingfisher as disruption subsides

Jefferies has upgraded B&Q owner Kingfisher (KGF), arguing the investment case has become more attractive as disruption around the business reduces.

Analyst James Grzinic upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 310p to 400p as he believes the risks from its transformation plan, named ‘One’, are reducing. The shares rose 3.6% to 319.6p yesterday.

This is evidenced by ‘strong sales response to new product ranges’ and ‘while the scale of change at Kingfisher remains meaningful…the pitfalls to profit expectations are reducing’.

‘Investment attractions are improving as disruption reduces and evidence of positive sales response to One product builds,’ he said. ‘The potential for a positive inflection in French market share and resilience to UK cyclical risk should be better valued.’

He said the increased target price ‘presumes investors will be willing to pay a c.13x forward price/earnings a year from now’.

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Key stats
Market capitalisation£1,706m
No. of shares out1,536m
No. of shares floating1,359m
No. of common shareholdersnot stated
No. of employees21940
Trading volume (10 day avg.)5m
Turnover£7,812m
Profit before tax£540m
Earnings per share0.78p
Cashflow per share14.30p
Cash per share115.64p

Further margin squeeze to come at Thomas Cook, says Hargreaves

Increased costs have hit margins at Thomas Cook (TCG) and Hargreaves Lansdown says it looks like they will be squeezed even further.

The shares fell 8.4% to 111.5p yesterday on news that full-year underlying earnings rose 9% to £9 billion but profits before tax were just £12 million. The group struggled with increased costs and pricing pressure in the UK, particularly on Spanish routes, that hit margins.

Analyst Nicholas Hyett said there were ‘promising signs’ in the northern European and continental businesses ‘but those are being outweighed by headwinds in the UK’.

‘With destinations in the Eastern Mediterranean out of favour following political unrest, holiday providers are dashing headlong into Spanish resorts. The increased competition is a double whammy for Thomas Cook, pushing up the cost of beds while piling the pressure on pricing as well,’ he said.

‘The group is making efforts to control costs, and holidaymakers are starting to return to destinations such as Turkey and Egypt that have struggled in recent years. But margins in the travel sector have always been tight, and news that they’re being squeezed even further is far from welcome.’

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Key stats
Market capitalisation£3,120m
No. of shares out475m
No. of shares floating462m
No. of common shareholdersnot stated
No. of employees30000
Trading volume (10 day avg.)1m
Turnover£1,990m
Profit before tax£200m
Earnings per share15.04p
Cashflow per share33.94p
Cash per share32.79p

More cash returns to come at SSP, says Shore Capital

Upper Crust owner SSP (SSPG) has reported better-than-expected full-year results and dividends, leading Shore Capital to predict more shareholder returns.

Analyst Greg Johnson retained his ‘buy’ recommendation on the shares, which jumped 6.6% to 647p on the news.

The group reported an underlying operating profit increase of 34% to £162.9 million, which was £5 million better than forecast. It was driven by strong revenue and improvement in margins.

Management noted that the current year had started well with an ‘encouraging’ pipeline of new contracts.

‘The group has announced a step in the payout ratio from 35% to 40%, resulting in a sharp increase in its full-year dividend per share to 8.1p against our forecast 6.8p and a £100 million special dividend and share consolidation,’ said Johnson.

‘With the debt/earnings likely to remain below the target range we would expect further cash returns going forward.’

He added that the ‘better-than-expected results and the special dividends’ meant he had revised up his profit before tax forecasts for 2018 to £174 million.

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Key stats
Market capitalisation£1,541m
No. of shares out450m
No. of shares floating317m
No. of common shareholdersnot stated
No. of employees1087
Trading volume (10 day avg.)1m
Turnover£671m
Profit before tax£99m
Earnings per share13.57p
Cashflow per share14.05p
Cash per share8.51p

Countryside Properties to shoot ahead next year, says Numis

Property developer Countryside Properties (CSPC) is set to be the fastest growing house builder next year but Numis believes the growth is ‘controlled’.

Analyst Chris Millington retained his ‘add’ recommendation and target price of 373p on the stock after full-year results that ‘delivered on all fronts’. The shares rose 2.1% to 346.6p yesterday.

‘Countryside has delivered on demanding expectations in 2017 and looks well placed to continue showing sector leading profit growth in 2018 and beyond,’ he said.

‘The growth in 2017 came from both divisions, with partnerships showing exceptional return on capital employed, and housebuilding starting to benefit from increasing scale. Encouragingly this growth is being achieved in a controlled manner, with all qualitative metrics showing an improvement despite the high level of volume growth.’

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Key stats
Market capitalisation£183m
No. of shares out51m
No. of shares floating32m
No. of common shareholdersnot stated
No. of employees810
Trading volume (10 day avg.)m
Turnover£142m
Profit before tax£11m
Earnings per share12.34p
Cashflow per share23.06p
Cash per share107.76p

Peel Hunt downgrades Charles Stanley over cost concerns

Peel Hunt has downgraded Charles Stanley (CAY) on the short-term challenges around commission and regulatory costs.

Analyst Stuart Duncan downgraded his recommendation from ‘add’ to ‘hold’ with a target price of 390p after interim results. The shares fell 7.2% to 356.4p yesterday.

He lowered his forecast for full-year profit before tax to £11.6 million, from £12.5 million, and earnings per share to 17.7p, from 19.1p.

‘There is still much to be done to deliver the 15% operating margin target, although the first half saw a number of initiatives focused on improving revenues implemented,’ he said.

‘However, the short-term challenge is commission income levels and extra regulatory costs - £900,000 in the second half – hence the moderation in expectations and increased risk around the full-year outcome.’

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