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The Expert View: Lancashire, Drax and Rightmove

Our daily roundup of analyst commentary on shares, also including Relx and CVS.

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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£1,503m
No. of shares out200m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees103
Trading volume (10 day avg.)m
Turnover495m USD
Profit before tax145m USD
Earnings per share0.73 USD
Cashflow per share0.74 USD
Cash per share1.17 USD

More special divis expected from Lancashire, says Peel Hunt

Lancashire (LRE), the specialist insurer whose focuses include aviation, marine and terrorism risk, is building its cash buffer which means more special dividends to come, says Peel Hunt.

Analyst Andreas van Embden retained his ‘add’ recommendation and target price of 710p on the stock after 2016 results. Shares had jumped 8.7%, of 59.5p, to 740p at the time of writing.

‘A better than expected underwriting result, a good defence on the core book… and further de-risking supports further surplus capital build-up in a soft market,’ he said.

‘The business has stabilised and with an agile underwriting strategy is well positioned to benefit from any market dislocation. Meanwhile, a surplus capital buffer will support ongoing special dividends we believe - c.8% yield.’

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Key stats
Market capitalisation£30,081m
No. of shares out2,050m
No. of shares floating1,073m
No. of common shareholdersnot stated
No. of employees30000
Trading volume (10 day avg.)3m
Turnover£5,971m
Profit before tax£1,008m
Earnings per share47.38p
Cashflow per share72.10p
Cash per share5.83p

Outlook is healthy for CVS, says Berenberg

An insurance initiative and acquisitive nature means the outlook is positive for veterinary practice operator CVS (CVSG), says Berenberg.

Analyst Sam England retained his ‘buy’ recommendation and increased the target price from £11.30 to £12.00 on the stock, after Berenberg hosted CVS finance director Nick Perrin at a roadshow.

The shares were trading up 1.5%, or 17p, at £10.83 at the time of writing.

‘The trip reconfirmed our positive view on the business given the continued progress on the company’s insurance initiative and ongoing momentum in acquisitions,’ he said. ‘We update our forecasts to account for the capital raise announced in December and adjust our estimates to incorporate the benefit of recent acquisitions.’

He added that CVS’ biggest competitor for acquisitions, Independent Vetcare, was sold by Summit Partners to a private equity fund in December.

‘The price paid for the acquisition was not disclosed but we believe that valuation was in the range of 18-20x earnings,’ he said. ‘While this private equity interest will make the market for acquisitions more competitive, we note that the valuations and transactions in this sector continue to be supportive of high valuation for CVS given its greater scale.’

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Key stats
Market capitalisation£1,446m
No. of shares out407m
No. of shares floating406m
No. of common shareholdersnot stated
No. of employees1442
Trading volume (10 day avg.)1m
Turnover£3,065m
Profit before tax£56m
Earnings per share13.82p
Cashflow per share38.47p
Cash per share32.93p

Drax income halved in 2016 but it’s looking up, says Jefferies

Falling power prices have more than halved energy producer Drax Group’s (DRX) net income but the outlook has improved, says Jefferies.

Analyst Oliver Salvesen retained his ‘underperform’ recommendation and target price of 305p on the stock following full year 2016 results. At the time of writing, the stock had dropped 5%, or 19p, to 359p.

‘Drax reported full year 2016 earnings of £140 million, -17% year-on-year and in-line with current consensus. Full-year 2016 net income of £21 million was -54% down year-on-year, due to falling achieved power prices,’ he said.

‘The outlook for Drax has considerably improved as a result of the contacts for difference contract, improving UK power prices and the Opus Energy acquisition in December 2016.’

While Drax did not provide an update on its dividends, the policy will be reviewed in the first half of this year.

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Key stats
Market capitalisation£30,081m
No. of shares out2,050m
No. of shares floating1,073m
No. of common shareholdersnot stated
No. of employees30000
Trading volume (10 day avg.)3m
Turnover£5,971m
Profit before tax£1,008m
Earnings per share47.38p
Cashflow per share72.10p
Cash per share5.83p

Deutsche Bank: Relx results will be solidly dependable

Deutsche Bank is expecting a ‘solidly dependable’ set of results from business analytics provider Relx Group (REL) on 23 February.

Analyst Chris Collett retained his ‘hold’ recommendation and target price of £14.30 on the stock, which was flat at £14.70 at the time of writing.

‘We expect another solidly dependable set of results, with 4% organic growth, driven by the risk division,’ he said.

‘One of the few unknowns is the size of the 2017 buyback, where we expect £600 million, a slight reduction on last year’s £700 million.’

He added that Relx’s buyback was ‘based on free cashflow remaining after dividends and acquisitions in the prior year’ and ‘after a reasonably heavy year for acquisitions in 2016 - totalling £330 million - and large dividend increases - up 38% - we think the buyback will moderate in the coming year’.

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Key stats
Market capitalisation£3,945m
No. of shares out93m
No. of shares floating92m
No. of common shareholdersnot stated
No. of employees412
Trading volume (10 day avg.)m
Turnover£192m
Profit before tax£109m
Earnings per share112.74p
Cashflow per share114.07p
Cash per share13.01p

Rightmove risk is to the upside, says Numis

The drop off in the housing market hasn’t impacted Numis’ view of Rightmove (RMV), with the analysts believing the greatest risk to the property search engine’s shares is on the upside.

Analyst Gareth Davies reiterated his ‘buy’ recommendation and target price of £47.50 on the stock, which was trading flat at £42.45 at the time of writing.

‘Rightmove will release results for the year to 31 December 2016 on the 24 February. We expect the group to report a strong second half performance despite a tougher housing market backdrop,’ he said.

‘We see risk to our estimates greatest on the upside. We remain comfortable with our “buy” recommendation into results despite the recent strong Rightmove share price performance.’

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