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The Expert View: Lloyds, Amec Foster Wheeler & Bloomsbury

A round-up of analyst commentary of shares, including Debenhams and Henderson Group.

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Key stats
Market capitalisation£40,397m
No. of shares out71,455m
No. of shares floating64,106m
No. of common shareholdersnot stated
No. of employees74117
Trading volume (10 day avg.)171m
Turnover£17,615m
Profit before tax£546m
Earnings per share0.76p
Cashflow per share4.24p
Cash per share82.73p

Lloyds’ margin call is encouraging, says UBS

News that Lloyds (LLOY) will keep its 2017 net interest margin in line with this year’s is a ‘statement of confidence’ in the future of the bank, said UBS.

Analyst Jason Napier retained his ‘buy’ recommendation and increased the target price from 65p to 67p following third quarter (Q3) results on Wednesday. Underlying profits were 2% better than expected at £1,912 million but news that the net interest margin would be 2.7% was what mattered most.

‘On the conference call management announced that Lloyds aims to hold the 2017 net interest margin in line with 2016’s guided 2.7%,’ he said. ‘This was significant news – seeing the share rally 4% intra-day – and implies an increase from the guided Q4 2016 margin as deposit re-pricing catches up with the impact of the Bank of England policy rate cut applied to the mortgage book.’

He added that on a revised estimate Lloyds traded at tangible net asset value for a forecast return on tangible equity of 11%, 8.9x 2017 earnings per share and with a running dividend yield of 5% and 7% in 2016 and 2017 respectively.

‘With substantial capital upside and strong running yield, we retain our ‘buy’ recommendation,’ said Napier.

The shares added 1.5p yesterday to close at 57.4p

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Key stats
Market capitalisation£1,810m
No. of shares out390m
No. of shares floating386m
No. of common shareholdersnot stated
No. of employees34013
Trading volume (10 day avg.)2m
Turnover£5,455m
Profit before tax£-252m
Earnings per share-65.80p
Cashflow per share-25.59p
Cash per share93.08p

Amec considers tough measures, says Jefferies

Shares in Amec Foster Wheeler (AMFW) plunged yesterday after the oilfield services firm delayed the conclusion of its strategic review and warned that oil and gas sector revenues would decline again next year.

Jefferies’ Mark Wilson retained his ‘underperform’ recommendation and target price of 310p on the stock as the company also postponed its capital markets day with analysts.

‘The pushback of the capital markets day creates uncertainty at best,’ he said. ‘At worst it suggests broader company issues are more acute than first thought. The call discussed both dividend cut and equity issuance as possible options to contribute to reducing debt, but also to create investment capital.’

He added that 2017 guidance from the firm shows ‘from a revenue point of view, mining and environment and infrastructure revenues are coming from an extremely low base to offset material declines, should they arise in Amec’s main market segments of oil and gas’.

Amec shares closed 20% or £1.20 down at 466p.

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Key stats
Market capitalisation£114m
No. of shares out75m
No. of shares floating69m
No. of common shareholdersnot stated
No. of employees585
Trading volume (10 day avg.)m
Turnover£124m
Profit before tax£10m
Earnings per share12.93p
Cashflow per share18.96p
Cash per share8.73p

Bloomsbury needs profits spell, says Peel Hunt

More magic was needed at Harry Potter publisher Bloomsbury Publishing (BLPU) as it reported ‘more sales, less profit’ in the past six months, said Peel Hunt.

Analyst Malcolm Morgan retained his ‘add’ recommendation and target price of 200p after Bloomsbury reported 19% revenue growth but a 21% profit fall £1.5 million in its first half.

‘These results will perhaps be seen with hindsight as a staging post to the new strategy rather than impressive in their own right,’ he said.

‘Revenue growth has come from renewed Harry Potter titles. Adult trade was flat, e-books sales falling and stock provisions up. In non-consumer the new digital strategy has cost £200,000 but the benefits have not kicked in yet. The loss of the Qatar contract has been an expensive loss and not replaced.’

Despite some concerns, Morgan said ‘overall the outlook is sound’ and the group is trading in line with management’s expectations.

The shares firmed 1.25p or 0.8% to 149.75p yesterday.

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Key stats
Market capitalisation£679m
No. of shares out1,228m
No. of shares floating1,125m
No. of common shareholdersnot stated
No. of employees7895
Trading volume (10 day avg.)6m
Turnover£2,323m
Profit before tax£94m
Earnings per share7.60p
Cashflow per share16.09p
Cash per share2.67p

Debenhams share rise on positive results

Shares in Debenhams (DEB) rose after the company reported ‘solid’ full-year results but challenges remain for the department store group, said Hargreaves Lansdown.

Analyst George Salmon said the results were in line with market expectations. A final dividend of 2.4p meant the full-year dividend rose 0.7% to 3.425p per share. The shares, which have lost a third of their value since the EU referendum, rose 3% or 1.7p to 55.3p.

‘Debenhams has hit profit expectations, but life in the UK clothing market has been difficult,’ he said. ‘With further pressure coming from the impact of the weaker pound, it is probably only going to get tougher for retailers in the coming months.’

Salmon said the group has currency hedges in place so ‘won’t feel the pinch from weaker sterling just yet, but it is just a matter of time’.

‘As and when the extra costs associated with the lower pound filter through, the group says that it will seek to remain competitive on price, which could well mean a hit to margins. The group does at least have plenty of time to prepare and so far the group’s cost control has been good,’ he said.

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Key stats
Market capitalisation£2,616m
No. of shares out1,132m
No. of shares floating1,037m
No. of common shareholdersnot stated
No. of employees1016
Trading volume (10 day avg.)3m
Turnover£773m
Profit before tax£161m
Earnings per share14.10p
Cashflow per share19.77p
Cash per share52.30p

Henderson reduces investment outflows after Brexit

Third quarter trading at Henderson Group (HGGH) was slightly weaker than expected but is still improving ahead of its merger with rival fund manager Janus Capital, believes Barclays.

Analyst Daniel Garrod retained his ‘equal weight’ recommendation and target price of 270p on the investment company.

‘Henderson reported ever-so-slightly worse than expected trading update revealing Q3 outflows of -£0.6 billion,’ he said, adding that it was still ‘an improvement against -£1.4 billion for quarter to June’.

‘By area, management detailed that the bulk of the outflows were from the retail side. Furthermore, approximately 70% of the quarter’s outflows were in July, with the rotation out of European assets balanced to some extent by continued demand for absolute return and income generating strategies.’

Garrod increased his 2016 earnings per share estimate by 0.5% to 15.3p and again for 2016 by 1% to 16.9p.

The shares slipped over 3% or 7.7p to 230.7p.

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