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The Expert View: Purplebricks, Prudential and Serco

Our daily roundup of analyst commentary on shares, also including Dixons Carphone and Imperial Brands.

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Key stats
Market capitalisation£997m
No. of shares out272m
No. of shares floating193m
No. of common shareholdersnot stated
No. of employees239
Trading volume (10 day avg.)1m
Turnover£47m
Profit before tax£-5m
Earnings per share-1.20p
Cashflow per share-0.98p
Cash per share26.37p

Will Purplebricks pop?

Jefferies is still sceptical about the valuation being applied to online estate agent Purplebricks (PURP), whose shares have risen 156% this year.

Analyst Anthony Codling said while interim results released yesterday looked ‘impressive’, but a lack of clarity on how many homes were actually being sold through the site was troublesome.

‘Once again, we find that Purplebricks continues to speak in riddles – “we sold and completed £4.6 billion of property with a further £3.8 billion in the pipeline”. However, we cannot tell how many homes that equates to,’ he said.

‘And that is the one thing we think potential customers should be asking: “If I pay you more than £1,000 what are the chances that you sell my home and how close will you get to the asking price.’

Codling has an ‘underperform’ rating on the shares and a 94p target price, well below the 361.8p at which they were trading yesterday, after an 8.9% fall.

‘Purplebricks is currently priced for perfection, yet we believe this early stage disruptor has yet to prove the efficacy of its business model,’ he said. ‘Should the model stumble, the share price may do likewise.’

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Key stats
Market capitalisation£47,610m
No. of shares out2,587m
No. of shares floating2,574m
No. of common shareholdersnot stated
No. of employees26267
Trading volume (10 day avg.)6m
Turnover£71,842m
Profit before tax£6,537m
Earnings per share74.98p
Cashflow per share81.19p
Cash per share381.36p

‘Immense’ opportunities for Prudential

Shore Capital remains convinced of its ‘buy’ rating on Prudential (PRU) after a recent investor conference, saying its opportunities ‘remain immense’.

‘The recent investor conference hosted by Prudential highlighted the scale of the opportunities open to the group across the globe and the extent to which it is grabbing these and/or positioning itself to avail of them,’ said analyst Eamonn Flanagan.

He highlighted the roll-out of its business in Africa, its push across China in its successful Asia business and strong positioning in the US through its Jackson National business.

In the UK, where it is merging its life assurance division with its M&G fund management arm, he said the ‘scope to deliver value’ was ‘significant’.

‘All this is supported by a formidable group balance sheet and a ruthless focus on capital velocity, return on equity and cash generation,’ he said. ‘For us, the potential and opportunities are Pru’s to lose.’

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Key stats
Market capitalisation£1,120m
No. of shares out1,099m
No. of shares floating1,079m
No. of common shareholdersnot stated
No. of employees43176
Trading volume (10 day avg.)4m
Turnover£3,011m
Profit before tax£119m
Earnings per share1.54p
Cashflow per share6.24p
Cash per share16.10p

Serco still has mountain to climb

Liberum hasn’t seen enough in better-than-expected results from Serco (SRP) to shift it from its ‘sell’ rating on the outsourcing group.

Serco shares jumped 12.7% to 107.5p yesterday as it said full-year profits were likely to come in around the top end of expectations.

Analyst Joe Brent upped his estimates for the company following the news, but kept his ‘sell’ rating and 100p target price on the shares.

'Management is liked and respected, but the market is challenging and they are not magicians,' he said.

‘The political landscape remains hard, with challenges in the UK (political uncertainty), US (Obamacare and budgetary uncertainty) and Middle East (poor relations between Saudi Arabia and Qatar).’

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Key stats
Market capitalisation£2,083m
No. of shares out1,158m
No. of shares floating938m
No. of common shareholdersnot stated
No. of employees43883
Trading volume (10 day avg.)19m
Turnover£10,580m
Profit before tax£684m
Earnings per share25.20p
Cashflow per share41.30p
Cash per share12.75p

Investors are being compensated for Dixons risks

Numis believes the risk-reward outlook for Dixons Carphone (DC) is improving after the electricals retailer posted first-half results in line with forecasts.

‘Interim profit before tax fell sharply, as expected, and the company’s central full-year guidance was trimmed by 5%,’ said analyst Matthew Taylor.

‘We expect further profit attrition in mobile but believe this will have a diminishing effect from 2019. Risks remain due to the high-ticket, discretionary product pitch and operational gearing, and the group needs to improve cash flow.

‘However, in our view the valuation at seven times price-earnings [on 2018 estimates] more than discounts this, at least for more adventurous funds.’ Taylor rates the shares an ‘add’ with a 210p target price. The shares jumped 8.5% to 181.6p yesterday.

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Key stats
Market capitalisation£29,339m
No. of shares out954m
No. of shares floating948m
No. of common shareholdersnot stated
No. of employees33900
Trading volume (10 day avg.)3m
Turnover£30,247m
Profit before tax£4,033m
Earnings per share147.25p
Cashflow per share293.76p
Cash per share65.34p

Imperial Brands hit by wholesaler collapse

Berenberg has trimmed its price target on Imperial Brands (IMB) after the cigarette maker was hit by the collapse into administration of P&H, the UK’s second largest tobacco wholesaler.

‘As the banks have first rights over the cash derived from trade debtors, Imperial Tobacco and Japan Tobacco are left to pay the outstanding duty on the tobacco products that P&H had sold,’ said analyst Jonathan Leinster, pointing to a cost of up to £160 million for the group.

‘These figures might reduce somewhat, because the companies will be able to reclaim on any unsold stock.’

Leinster cut his price target to £37.65 from £37.80 and maintained his ‘buy’ rating. The shares were down 1% at £30.74 yesterday.

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