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The Expert View: Ladbrokes, Whitbread and Smiths

Our daily roundup of analyst commentary on shares, also including Hansteen and Esure.

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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£3,393m
No. of shares out1,916m
No. of shares floating1,722m
No. of common shareholdersnot stated
No. of employees26141
Trading volume (10 day avg.)8m
Turnover£1,508m
Profit before tax£199m
Earnings per share-17.49p
Cashflow per share-8.34p
Cash per share3.44p

Shore Capital: merit in Ladbrokes-GVC tie-up

The proposed merger between Ladbrokes Coral (LCL) and GVC has ‘significant merits’, according to Shore Capital.

Analyst Greg Johnson retained his ‘buy’ recommendation and target price of 135p on Ladbrokes Coral after news that GVC would offer 161p per share for the business, with a further 43p contingent on the outcome of government regulation of fixed odds betting terminals.

Shares in Ladbrokes Coral surged 30.9% to 177.6p yesterday on the news.

‘The proposed tie-up has been rumoured for a while,’ said Johnson. ‘We see significant merits in the tie-up notably from cost synergies, a more diverse geographic footprint and [reductions to] the risk around UK regulation and machines in particular.’

He added that there ‘appears little premium in the offer price’ but if the merger can ‘capitalise £100 million of synergies…[that would] equate to a further 25p per Ladbrokes Coral share’.

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Key stats
Market capitalisation£7,135m
No. of shares out183m
No. of shares floating180m
No. of common shareholdersnot stated
No. of employees42044
Trading volume (10 day avg.)1m
Turnover£3,106m
Profit before tax£806m
Earnings per share230.89p
Cashflow per share348.30p
Cash per share34.37p

Will Whitbread’s activist investor push for a break up?

The revelation that Costa Coffee and Premier Inn owner Whitbread (WTB) has an activist investor on the board has piqued the market’s interest, says Numis.

Analyst Tim Barrett retained his ‘hold’ recommendation and target price of £41.00 on the shares, which have rallied 5.5% in the last two days and were yesterday trading at £39.28.

‘Whitbread’s share price was strong on Wednesday on the announcement that Sachem Head, a hedge fund which has taken an activist approach in the past, has disclosed a 3.4% stake,’ he said.

‘They have made no public comment and nothing is known of their intentions. However, Whitbread’s structure - Premier Inn, pub restaurants and Costa Coffee have little overlap - has periodically led to speculation of a break up.’

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Key stats
Market capitalisation£5,795m
No. of shares out396m
No. of shares floating394m
No. of common shareholdersnot stated
No. of employees21900
Trading volume (10 day avg.)1m
Turnover£3,280m
Profit before tax£691m
Earnings per share142.32p
Cashflow per share172.53p
Cash per share197.74p

Smiths is engineering growth, says Deutsche Bank

Deutsche Bank believes growth is coming at Smiths (SMIN) marks a turnaround for the engineering group.

Analyst Jonathan Hurn retained his ‘buy’ recommendation and target price of £17.50 on the shares after a capital markets day. Smiths was trading at £14.63 yesterday.

‘One of the key push backs on the equity story has been the lack of group organic growth since 2013,’ said Hurn. ‘The presentation at the capital markets day outlined steps across four divisions on how Smiths plans to grow and outgrow its markets.

‘Special focus was on choosing the right market areas as well as on innovation/digitalisation. We came away reassured that group organic growth should start to materialise in 2018 and accompany Smiths’ maintained high teens margin.’

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Key stats
Market capitalisation£546m
No. of shares out413m
No. of shares floating397m
No. of common shareholdersnot stated
No. of employees95
Trading volume (10 day avg.)3m
Turnover£113m
Profit before tax£77m
Earnings per share13.80p
Cashflow per share13.14p
Cash per share11.08p

Liberum downgrades ‘sub-scale’ Hansteen

Liberum has downgraded property investment company Hansteen (HSTN) following a return of cash to shareholders that has left the portfolio ‘sub-scale’.

Analyst Kieran Lee downgraded his recommendation from ‘buy’ to ‘hold’ and increased the his target price from 135p to 140p after the company returned £578 million to shareholders at a 5% premium to net asset value (NAV). The shares were down 1% at 133.3p yesterday.

‘Hansteen’s remaining UK portfolio is now sub-scale,’ said Lee. ‘While management has form for realising value, portfolio granularity, asset management requirements and regional bias may limit the number of potential purchasers.

‘With the shares trading at a 28% premium to the wider sector, we see little further value.’

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Key stats
Market capitalisation£1,095m
No. of shares out418m
No. of shares floating281m
No. of common shareholdersnot stated
No. of employees1623
Trading volume (10 day avg.)1m
Turnover£648m
Profit before tax£100m
Earnings per share14.21p
Cashflow per share18.75p
Cash per share6.10p

Peel Hunt upgrades accelerating Esure

Peel Hunt has upgraded Esure (ESUR) after the insurance company delivered better than expected growth this year.

Analyst Andreas van Embden upgraded his recommendation from ‘hold’ to ‘add’ and increased the target price from 285p to 295p. The shares rose 2.5% to 262.4p yesterday.

‘Esure is delivering better than expected growth momentum in 2017, with evidence that underwriting performance is recovering gradually. Esure is starting to accelerate growth, leaving some competitors behind amidst a changing motor insurance landscape in the UK.’

He estimated an earnings per share compound annual growth rate of 12% in the next three years from 2017.

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