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The Expert View: RBS, JD Wetherspoon and BSkyB

A roundup of analyst recommendations and comments, also including Aveva and Whitbread.

Our daily round-up of analyst recommendations and commentary, featuring RBS, JD Wetherspoons, BskyB, Whitbread and Aveva.

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Key stats
Market capitalisation£57,132m
No. of shares out16,403m
No. of shares floating7,261m
No. of common shareholdersnot stated
No. of employees120300
Trading volume (10 day avg.)11m
Profit before tax£-5,820m
Earnings per share-52.52p
Cashflow per share-35.77p
Cash per share709.78p

*Correct as at 22 Jan 2014

RBS to be profitable in two years, says Liberum

Liberum is backing taxpayer-owned RBS (RBS.L) to become ‘highly profitable and low risk’ by 2017 as it off-loads bad banking.

Analyst Cormac Leech retained a ‘buy’ recommendation on the shares and increased Liberum’s target price 31% to 445p.

‘RBS has the potential to be highly profitable and low risk by 2017,’ he said. ‘The bad bank is off-loaded, the balance sheet stops shrinking, Citizens is sold, the liquidity portfolio is run down by £25 billion+ and Direct Line is replaced by an alternative financial investment.

‘That implies an earnings per share of 42p.’

Leech said the shares were out of favour with investors and looked cheap but ‘two years on and it will be run for profit, not just safety, as risk-averse civil servants cede control’.

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Key stats
Market capitalisation£1,013m
No. of shares out126m
No. of shares floating86m
No. of common shareholdersnot stated
No. of employees15402
Trading volume (10 day avg.)0m
Profit before tax£46m
Earnings per share36.65p
Cashflow per share78.49p
Cash per share23.67p

*Correct as at 22 Jan 2014

Peel Hunt toasts the good health of JD Wetherspoons

Pub chain JD Wetherspoon (JDW.L) has delivered strong sales but lower margins in its Q2 results due to investment in new pubs.

Peel Hunt analyst Nick Batram said sales growth of 6.7% was ‘pretty impressive’ but it was offset by a slip in operating margins to 8.1% against an expected 8.3%.

However, Batram still retained a ‘buy’ recommendation and a target price of 842p as the fall in margins was due to investment in 18 new sites in the financial year and 11 more sites under development.

‘The target of 40-50 new openings remains,’ said Batram. ‘Much of the margin decline is due to investment in infrastructure as the opening programme accelerates. [Moving forward,] concerns over another margin decline may well see the shares comeback in the short-term. However, a significant amount of the margin investment has been made because the strong top line has enabled it.

‘Looking further out we do see room for positive surprises in H2.’

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Key stats
Market capitalisation£13,581m
No. of shares out1,580m
No. of shares floating938m
No. of common shareholdersnot stated
No. of employees18890
Trading volume (10 day avg.)4m
Profit before tax£979m
Earnings per share59.70p
Cashflow per share82.74p
Cash per share88.46p

*Correct as at 22 Jan 2014

BskyB still looks good despite Champions’ League disappointment

The loss of Champions’ League football for BskyB (BSY.L) is not expected to overshadow its interim results next week.

Numis analyst Paul Richards retained his ‘add’ recommendation and target price of 941p on the shares.

Richards said Sky is continuing to roll out connected services, such as SkyGo Extra and OnDemand, and has ‘customer satisfaction advantages’ over its rivals. It is also planning to invest £60-£70 million in its connected services in 2014, which will create ‘long term value’.

‘Sky’s progress in connected services has been overshadowed by the loss of Champions’ League football and the fear as to what this could mean for the Premier League renewal later this year/ early 2015,’ he said.

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Key stats
Market capitalisation£1,444m
No. of shares out64m
No. of shares floating63m
No. of common shareholdersnot stated
No. of employees1317
Trading volume (10 day avg.)0m
Profit before tax£45m
Earnings per share71.09p
Cashflow per share81.46p
Cash per share85.26p

*Correct as at 22 Jan 2014

Jefferies downgrades Aveva to ‘hold’ on project delays

Jefferies has downgraded engineering software supplier Aveva (AVV.L) from ‘buy’ to ‘hold’ following project delays and fears of short-term headwinds.

Analyst Milan Radia also reduced the target price for the shares from £27.40 to £25.80 stating that ‘shorter term demand trends appear to be a little muted’.

Aveva, which supplies software to oil companies, has been disappointed by BP’s decision not to proceed with a roll-out of Aveva software ‘on the grounds, we suspect, of complexity and cost’, said Radia.

The company is also failing to make its mark in South American markets, but it is not all bad news.

‘We remain convinced of Aveva’s technology market leadership and of the prospects of success of the new E3D product,’ said Radia. ‘Elsewhere, the UK nuclear programmes will involve deployment of Aveva’s software given that EDF and Capgemini are customers in that segment.’

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Key stats
Market capitalisation£7,117m
No. of shares out181m
No. of shares floating177m
No. of common shareholdersnot stated
No. of employees33716
Trading volume (10 day avg.)0m
Profit before tax£294m
Earnings per share164.32p
Cashflow per share234.79p
Cash per share22.76p

*Correct as at 22 Jan 2014

Costa brand to boost Whitbread, says Barclays

Costa Coffee owner Whitbread (WTB.L) is set to benefit from a sharp increase in UK coffee shops over the next eight years and a potential increase in drinks prices this year.

Barclays analyst Vicki Stern has maintained her ‘overweight’ recommendation but increased the target price for Whitbread shares from 39.2p to 42.3p following a meeting with researchers of the branded UK coffee market.

Stern said the coffee shop market ‘can comfortable reach 9,500 shops by 2021 (vs 5,531 today)’ and turnover to come from new units and like-for-like sales growth.

Costa, Whitbread’s key coffee chain brand, has outperformed the competition and gained a 20% share over the past six years, and it still has room this year to increase prices.

‘Price sensitivity and spend per visit indicators point to a more relaxed consumer,’ she said. ‘Correspondingly, Starbucks has increased coffee prices by c5% and we would not be surprised to see Costa follow this year.’

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