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The Expert View: Prudential, Glencore and Go-Ahead

Our daily roundup of analyst commentary on shares, also including Savills and Card Factory.

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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£47,561m
No. of shares out2,586m
No. of shares floating2,573m
No. of common shareholdersnot stated
No. of employees26267
Trading volume (10 day avg.)4m
Turnover£71,842m
Profit before tax£1,921m
Earnings per share74.98p
Cashflow per share81.19p
Cash per share381.36p

Shore hails Prudential’s M&G merger

Prudential’s (PRU) merger of its UK life insurance division with its M&G fund management business ‘makes enormous sense’ according to Shore Capital, which has reiterated its ‘buy’ rating on the stock.

Prudential yesterday announced it would be combining its two major UK operations into one group, M&G Prudential, in a move it said could save £145 million a year.

Shore Capital analyst Eamonn Flanagan said the move would help the group ‘to drive out costs and to deliver a unified proposition to the market’.

‘In so doing, Pru now has three fully formed, unified, distinct and financially robust divisions across Asia, the US and the UK,’ he added, flagging he was likely to upgrade his sum-of-the-parts valuation to ‘at least’ £22.50. The shares were flat at £18.39 yesterday.

‘With the stock trading at a c.19% discount to this figure, we reiterate our “buy” recommendation,’ he said.

‘The strength of the group’s business model across the world is unparalleled, to us, and it has a formidable balance sheet to match.

‘The operations in Asia and the US are “best in class” in our view in their respective territories, with the UK / M&G likely to become so in due course.’

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Key stats
Market capitalisation£47,510m
No. of shares out14,395m
No. of shares floating12,175m
No. of common shareholdersnot stated
No. of employees110378
Trading volume (10 day avg.)41m
Turnover117,752m USD
Profit before tax-573m USD
Earnings per share-0.04 USD
Cashflow per share0.24 USD
Cash per share0.13 USD

Glencore a ‘buy’ in mining bull market

Glencore (GLEN) is ‘nearly ideally positioned’ for an ongoing bull market in mining that is underappreciated by investors, according to Jefferies.

Analyst Christopher LaFemina retained his ‘buy’ rating on the shares and raised his price target from 380p to 400p, after in-line results from the miner. The shares fell 2.5% to 332.7p yesterday.

‘Management is focused on growth and potential opportunistic mergers and acquisitions, and the company has the balance sheet and free cash flow to pursue growth and increase dividends,’ he said.

‘The Glencore turnaround since late 2015 has been remarkable and is still underappreciated, in our view. Despite the very strong cyclical recovery in mining and the positive outlook, investor interest in the sector is still low, and mining shares are still under-owned.’

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Key stats
Market capitalisation£750m
No. of shares out43m
No. of shares floating38m
No. of common shareholdersnot stated
No. of employees27566
Trading volume (10 day avg.)m
Turnover£3,361m
Profit before tax£94m
Earnings per share216.91p
Cashflow per share408.12p
Cash per share1,480.97p

Go-Ahead still a ‘buy’ after West Midlands blow

Liberum has lowered its target price for shares in Go-Ahead (GOG) after the transport operator failed to win the replacement contract for the West Midlands rail franchise.

Analyst Gerard Khoo cut the target to £19.10 from £19.75, as the shares fell 2.8% to £17.46 yesterday.

But he kept his ‘buy’ rating, acknowledging that while the news was ‘disappointing’, the contract accounted for only a small proportion of group earnings.

‘Go-Ahead does not disclose the profitability of its individual rail franchises, but we know that West Midlands was the smallest of its current contracts,’ he said.

‘We estimate its operating profit contribution was in the single-digit millions range, after allowing for the 35% minority interest. Consequently, the year-on-year profit headwind from this contribution dropping out is modest.’

But he dismissed claims the group was being punished for the problems with the Southern rail franchise.

‘Not only would Go-Ahead have not been allowed to pre-qualify to bid for new franchises if there were material concerns about its suitability to subsequently operate them, but also the assessment process used to determine the winner of a franchise competition is now highly objective and anonymised,’ he said.

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Key stats
Market capitalisation£1,117m
No. of shares out341m
No. of shares floating299m
No. of common shareholdersnot stated
No. of employees9928
Trading volume (10 day avg.)m
Turnover£398m
Profit before tax£66m
Earnings per share19.27p
Cashflow per share22.47p
Cash per share0.88p

Card Factory’s 8% yield belies growth

Shares in Card Factory (CARDC) should not be yielding 8% given the greetings card retailer’s strong position and growth prospects, according to Peel Hunt.

The group yesterday reported its best first-half sales figures since its flotation in 2014, with like-for-like sales up 3.1% in the six months to the end of June.

With the shares trading at 324.6p, the stock is a strong yielder, having paid a total of 24.1p in dividends, including a 15p special, in its last financial year.

‘Market leaders that are growing market shares, hurting the competition and achieving strong cash generation should not, in our view yield 8%,’ said Peel Hunt analyst Jonathan Pritchard.

‘We continue to believe that the special (which will be announced at the interims) should be looked upon as an ordinary distribution, and only see the momentum in the business improving from here.’

Prichard retained his ‘buy’ rating and 400p target price on the shares.

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Key stats
Market capitalisation£1,302m
No. of shares out142m
No. of shares floating132m
No. of common shareholdersnot stated
No. of employees32361
Trading volume (10 day avg.)m
Turnover£1,446m
Profit before tax£67m
Earnings per share47.72p
Cashflow per share62.27p
Cash per share159.93p

Solid Savills shares don’t price in positives

Numis is sticking with its ‘add’ rating for shares in Savills (SVS) after a solid first half for the estate agent.

Analyst Chris Millington retained his 996p target price on the shares, which rose 3.2% to 938.7p yesterday after the company reported a 15% jump in revenues, with profits rising 12%.

‘Savills has achieved good first half growth despite investment in the business and mixed market conditions,’ he said.

‘We have upgraded 2017 estimates slightly, although we think the risk remains on the upside. In our view Savills is well placed to show further progress given its diversification by geography and end market and the fact it is strengthening its business in the US and Europe through team hires and acquisitions.

‘We think these positives are not fully reflected in the c.12 times price earnings ratio for 2018, which is based on conservative estimates.’

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