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The Expert View: Merlin, Dixons and Thomas Cook

Our daily roundup of the best analyst commentary on shares, also including Kier and Lonmin.

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Key stats
Market capitalisation£3,588m
No. of shares out1,014m
No. of shares floating670m
No. of common shareholdersnot stated
No. of employees16285
Trading volume (10 day avg.)0m
Turnover£1,192m
Profit before tax£145m
Earnings per share14.28p
Cashflow per share24.12p
Cash per share26.04p

*Correct as at 15 May 2014

Lego film fillip for Merlin Entertainments

The Lego Movie has helped to boost Legoland owner Merlin Entertainments (MERL), with the company trading ahead of analyst expectations.

Panmure analyst Karl Burns reiterated his ‘buy’ recommendation and target price of 446p following the company’s latest trading statement, covering the 18 weeks to 3 May. Shares were flat yesterday at 355p.

‘Merlin Entertainment has reported… like-for-like sales increasing by 12%, well ahead of our around 3% full-year forecast,’ said Burns. ‘However, this significant increase in like-for-likes is driven by favourable weather in North Europe, strong promotional activity and the launch of The Lego Movie benefiting the two Legoland parks and Discovery centres in the US.’

However, he added that despite the outperformance in the early part of the year management had not changed its full-year forecasts.

‘We retain our full-year forecasts but note Merlin is currently trading ahead of our estimates,’ said Burns. ‘We believe Merlin remains attractive with five-year double-digit earnings per share growth.’

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Key stats
Market capitalisation£929m
No. of shares out55m
No. of shares floating48m
No. of common shareholdersnot stated
No. of employees10455
Trading volume (10 day avg.)0m
Turnover£1,943m
Profit before tax£25m
Earnings per share61.97p
Cashflow per share107.31p
Cash per share382.20p

*Correct as at 15 May 2014

Kier’s hardy outlook propels it ahead of peers

Building company Kier Group (KIE) has been upgraded as its latest trading update shows it will benefit not only from a recovering property market but is ahead of its peers in constructions.

Numis analyst Howard Seymour upgraded the stock from ‘add’ to ‘buy’ and retained a target price of £21.25. Shares were yesterday up 30p, or 1.8%, at £16.76.

‘Kier’s [trading statement] points to a more positive construction outlook that its peers, the benefits of its enlarged services business coming to the fore and property continuing to benefit from an improving market,’ said Seymour.

He added that Kier was one of the few companies in the sector showing increasing dividends and that it remained ‘our favoured stock in the construction service space to benefit from the improving macro conditions’.

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Key stats
Market capitalisation£1,443m
No. of shares out569m
No. of shares floating429m
No. of common shareholdersnot stated
No. of employees27208
Trading volume (10 day avg.)1m
Turnover903m USD
Profit before tax99m USD
Earnings per share0.18 USD
Cashflow per share0.39 USD
Cash per share0.21 USD

*Correct as at 15 May 2014

Strikes and production woes hit Lonmin

Strike action and a ‘defensive’ business model is hitting platinum miner Lonmin (LMI).

Following a trading statement from the company, Investec analyst Marc Elliott retained a ‘sell’ recommendation and reduced the target price from 258p to 238p. Shares fell 7.4p, or 3.8%, to 254p yesterday.

‘The interims highlighted numerous challenges as strike action continues and platinum prices show little response thus far,’ he said. ‘The financial position was reasonable with net cash of $71 million (£42 million). However, the business model appears to be increasingly forced towards a more defensive stance, with capital programmes to be delayed and a focus on maintaining the production profile as market conditions cannot justify investment in growth.

‘We see long-term value but not at current levels.’

Elliott noted the strike action in South Africa was hanging over the company as four workers have died in recent violence and unions are resisting miners returning to work.

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Key stats
Market capitalisation£1,693m
No. of shares out3,661m
No. of shares floating3,584m
No. of common shareholdersnot stated
No. of employees35323
Trading volume (10 day avg.)15m
Turnover£7,252m
Profit before tax£39m
Earnings per share1.09p
Cashflow per share4.33p
Cash per share11.23p

*Correct as at 15 May 2014

Dixons to be winner from Carphone Warehouse merger

Dixons (DXNS) is tipped to be the winner from its merger with Carphone Warehouse by Cantor analysts.

Analyst Freddie George retained a ‘buy’ rating and target price of 60p for electrical goods retailer Dixons following a trading update which was ‘broadly in line with market expectations, with sales behind market expectations but margins significantly better than forecast’. Full-year 2014 forecasts were moving towards the top end of the range, he added. Shares yesterday tumbled by more than 10% to 45.7p.

‘The anticipated merger of the company with Carphone Warehouse will overshadow the trading update,’ he said. ‘Carphone Warehouse…is seeking to develop sales in adjacent categories, such as tablets, while Dixons has been openly looking to increase its mobile offering…the merger in our view is more compelling to Dixons.’

George said that while there was scepticism about combining two companies with very different cultures ‘we believe the deal will be beneficial to Dixons’.

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Key stats
Market capitalisation£2,296m
No. of shares out1,459m
No. of shares floating1,435m
No. of common shareholdersnot stated
No. of employees26448
Trading volume (10 day avg.)4m
Turnover£9,315m
Profit before tax£-199m
Earnings per share-16.67p
Cashflow per share1.42p
Cash per share74.94p

*Correct as at 15 May 2014

Thomas Cook on earnings upgrade path

After teetering on the brink of collapse just three years ago, the recovery at Thomas Cook (TCG) continues to go from strength to strength.

Jefferies analyst Mark Irvine-Fortescue retained a ‘buy’ recommendation and increased the target price from 200p to 230p. Shares yesterday fell 12.6% to 156.1p.

‘Thomas Cook is on a multi-year earnings upgrade path and we see [the first half] update as the next catalyst,’ he said.

He noted the company was not only trading in line with expectations but a further £20 million of cost savings had been identified in a cost-cutting exercise known as ‘wave 1’. A second exercise – ‘wave 2’ – is expected to identify £150 million of benefits for the company.

‘We continue to see better value at Thomas Cook than TUI Travel,’ said Irvine-Fortescue. ‘We think that its superior growth prospects and self-help opportunities mean that the current valuation discount [of TUI] is difficult to justify.’

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