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The Expert View: Lancashire, Hargreaves Lansdown and Cobham

Our daily roundup of the best analyst commentary on shares, also including InterContinental Hotels and Henderson.

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Key stats
Market capitalisation£1,135m
No. of shares out190m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees103
Trading volume (10 day avg.)0m
Turnover381m USD
Profit before tax132m USD
Earnings per share0.69 USD
Cashflow per share0.74 USD
Cash per share1.31 USD

*Correct as at 7 Aug 2014

Lancashire downgraded after falling short again

Lancashire (LRE), the specialist insurer whose focuses include aviation, marine and terrorism risk, has been downgraded after poor interim results that show it is ‘uncomfortable in its own skin’.

Peel Hunt analyst Mark Williamson downgraded his recommendation from ‘hold’ to ‘sell’ and lowered his target price from 643p to 583p. Shares were trading at 596.9p yesterday.

‘Recent interim results did little to sooth our concerns, having again fallen short of expectations and resulting in our downgrading our December 2014 profit before tax forecasts by 20% to $189 million,’ he said.

‘While Lancashire is undoubtedly doing some sensible things, including buying more reinsurance protection, it appears to be struggling to find its place in changed market conditions, and we remain concerned by the abrupt departure of [founder and chief executive] Richard Brindle.’

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Key stats
Market capitalisation£3,366m
No. of shares out1,139m
No. of shares floating1,121m
No. of common shareholdersnot stated
No. of employees10090
Trading volume (10 day avg.)2m
Turnover£1,790m
Profit before tax£114m
Earnings per share10.65p
Cashflow per share26.21p
Cash per share18.61p

*Correct as at 7 Aug 2014

‘Under review’ Cobham meets ‘cautious’ consensus

Defence and security specialist Cobham (COB) is under review after first-half results that will ‘keep both the bears and bulls busy’.

Investec analyst Rami Myerson placed his ‘reduce’ recommendation and target price of 310p ‘under review’. Shares rose 3.2% to 296.3p yesterday on the results.

‘Cobham H1 results are in line with consensus expectations, which were set at a cautious level. This will likely reassure the bulls after a number of slip-ups in recent years,’ he said.

‘Revenues down organically by c.4%, a 15.5% earnings before interest and tax margin and weak cash flow are not inspiring given the restructuring Cobham is benefitting from…We place our rating and price target “under review” after the decline in Cobham’s shares since June.’

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Key stats
Market capitalisation£4,976m
No. of shares out474m
No. of shares floating220m
No. of common shareholdersnot stated
No. of employees752
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 7 Aug 2014

Hargreaves Lansdown upgraded on share price weakness

Stockbroking giant Hargreaves Lansdown (HRGV) has been upgraded after a tough year that saw the introduction of stricter regulation.

Numis analyst James Hamilton upgraded his recommendation from ‘hold’ to ‘buy’ but retained a target price of £12.22 on the stock. Shares were trading 1.5% higher yesterday at £10.48.

‘The group’s revenue model has been fundamentally altered [by the new rules] and undoubtedly some customers will have been made worse off, despite the vast majority being better off,’ he said.

‘We believe the group has a very strong market position in a market that is experiencing structural growth…We believe a few customers will have left, there will have been a modest amount of yield compression over and above that already highlighted by the group and it is also possible that the frenetic pace of customer acquisition could have slowed a little.’

While Hamilton expected margins to fall he said the fundamental model remained ‘robust’ while the group’s ‘superior customer service and best in market unit pricing’ would serve as ‘powerful drivers’. On the back of recent share price weakness he upgraded to ‘buy’.

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Key stats
Market capitalisation£5,281m
No. of shares out236m
No. of shares floating231m
No. of common shareholdersnot stated
No. of employees8179
Trading volume (10 day avg.)1m
Turnover1,127m USD
Profit before tax220m USD
Earnings per share0.89 USD
Cashflow per share1.10 USD
Cash per share0.36 USD

*Correct as at 7 Aug 2014

InterContinental offloads Le Grand for the right price

The swift sale of Le Grand Hotel in Paris by InterContinental Hotels (IHG) was a surprise to Shore Capital analysts who believe the majority of the proceeds will be returned to shareholders.

Shore Capital analyst Greg Johnson reiterated a ‘sell at £22.78’ recommendation following the offloading of the hotel for $442 million (£262.5 million) or $940,000 a room which was ‘consistent’ with his expectations although he expected the figure to be partly offset by £60 million of spending commitments. InterContinental fell 1.8% to £22.37 in yesterday's trading.

‘Although an eventual disposal was expected, given the ongoing strategic review, the quickness of the sale is surprising,’ he said. ‘Although initially modestly earnings dilutive we would expect the majority of proceeds to be returned to shareholders – c.$300 million would leave the leverage position broadly unchanged – leaving the disposal broadly earnings neutral.’

He added: ‘The disposal of Le Grand leaves just Hong Kong remaining of the original “big four” properties which we expected to be sold over the medium term. We continue to view the current valuation as rich given the pace of the system size growth, [with] double multi-decade system growth discounted for China, although note the current strength in underlying trading.’

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Key stats
Market capitalisation£2,584m
No. of shares out1,134m
No. of shares floating1,113m
No. of common shareholdersnot stated
No. of employees1029
Trading volume (10 day avg.)2m
Turnover£590m
Profit before tax£107m
Earnings per share9.43p
Cashflow per share14.27p
Cash per share20.97p

*Correct as at 7 Aug 2014

Henderson looking strong after first half results

First half results for asset management group Henderson (HGG) show ‘real progress’ but some risks still remain.

Bank of America Merrill Lynch analyst Philip Middleton retained a ‘neutral’ recommendation and target price of 260p on the shares after first half results reported £5 billion of inflows although profit before tax was 5% below estimates. Henderson fell 6.1% to 226.7p in yesterday's trading as a result.

‘We think that Henderson has had a half of strong delivery. If anything, our estimates might edge up, but we suspect consensus may be a bit disappointed,’ he said. ‘More important than one half’s numbers, we think, is the continued evidence that the company is delivering strong, diversified asset growth.

‘We are ‘neutral’ on Henderson because we think valuation is reasonable but not cheap, and because of worries about European regulation, especially commission unbundling. It is though, in our view a company with strong business momentum.’

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