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The Expert View: Royal Mail, Burberry and National Grid

Our daily roundup of analyst commentary on shares, also including Cineworld and Balfour Beatty.

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Key stats
Market capitalisation£4,371m
No. of shares out1,000m
No. of shares floating987m
No. of common shareholdersnot stated
No. of employees156535
Trading volume (10 day avg.)3m
Turnover£9,251m
Profit before tax£215m
Earnings per share21.40p
Cashflow per share49.16p
Cash per share36.80p

Liberum concerned about Royal Mail competition

Liberum is concerned about the ‘intensity’ of the competition Royal Mail (RMG) faces in parcels.

Analyst Gerald Khoo retained his ‘sell’ recommendation and target price of 400p on the stock after full-year results came in ahead of consensus ‘albeit with the latter having been cut steadily through the year’. The shares were trading up 3.8%, or 16.5p, at 447p at the time of writing.

‘The decline in letters volumes is expected to be at the worse end of the long-term range, down 4-6%, but management expects parcels volumes to track market growth at 3%,’ he said.

‘Progress on costs is expected to continue, although management is flagging some headwinds. We remain concerned about the intensity of competition in the UK parcels market, and there are still risks in agreeing new pension arrangements.’

Key stats
Market capitalisation£7,590m
No. of shares out445m
No. of shares floating426m
No. of common shareholdersnot stated
No. of employees10181
Trading volume (10 day avg.)2m
Turnover£2,515m
Profit before tax£310m
Earnings per share69.38p
Cashflow per share103.90p
Cash per share159.94p

Hargreaves Lansdown: Burberry has turned a corner

Efforts to turn the ship are starting to pay off at Burberry (BRBY), with Hargreaves Lansdown pointing to ‘vital signs’ picking up.

Full-year results for Burberry show sales rose 10% to £2.8 billion and profits were up 10% to £462 million, helped by currency swings in the company’s favour. However, the underlying picture is that sales and profits were down significantly as margins have been put under pressure.

However, the company has made it clear the efforts to steady the ship are working, with costs being cut by £20 million last year and another £50 million to come.

The shares were trading up 1.9%, or 31p, at £16.72 at the time of writing.

Steve Clayton, manager of the £260 million HL Select UK Shares fund, said the ‘vital signs look to be picking up at Burberry’ and ‘despite the difficulties of the last few years, cashflow has held up throughout, underlining the attractions of the stock’.

He added: ‘Luxury goods can generate high margins, selling baubles to a gilded clientele and Burberry’s long term potential seems strong.’

Key stats
Market capitalisation£39,099m
No. of shares out3,753m
No. of shares floating3,594m
No. of common shareholdersnot stated
No. of employees25068
Trading volume (10 day avg.)8m
Turnover£15,115m
Profit before tax£2,591m
Earnings per share68.71p
Cashflow per share111.59p
Cash per share55.49p

Solid performance at National Grid, says Jefferies

National Grid (NG) continues to post solid performance despite a ‘small reduction’ in the return on equity, says Jefferies.

Analyst Ahmed Farman retained his ‘hold’ recommendation and target price of 950p on the stock after full-year results. The company posted a 14% increase in earnings before interest and taxation of £4.7 billion. Earnings per share of 73p also marked a 16% year-on-year increase, and were 4% ahead of consensus.

Farman said the outlook for group profits in 2017/18 ‘remains stable’ and that returns in the US business were expected to improve, although the benefits would be offset by timing effects.

‘Despite seeing a small reduction in the return on equity, National Grid has delivered another year of solid financial performance,’ he said.

Key stats
Market capitalisation£1,936m
No. of shares out269m
No. of shares floating189m
No. of common shareholdersnot stated
No. of employees9946
Trading volume (10 day avg.)1m
Turnover£798m
Profit before tax£82m
Earnings per share30.30p
Cashflow per share51.96p
Cash per share20.85p

Numis: Cineworld shares will pause for breath

Numis believes Cineworld (CINE) shares will ‘pause for breath’ as they trade at a premium to the sector.

Analyst Richard Stuber retained his ‘hold’ recommendation and target price of 750p following a trading update. The shares were up 5p at 734p at the time of writing.

‘Cineworld achieved group revenue growth of 15.8% supported by a strong film slate year to date,’ he said.

‘We raised estimates last month by 2% and while management is not raising guidance, we think earnings risk remains on the upside.’

He added the shares had enjoyed a strong run, up 30% year to date.

‘The shares trade on 11.2x 2017 enterprise value / earnings, a premium to mergers and acquisitions transactions in this sector,’ he said. ‘In the absence of further earnings upgrades, we think the shares may pause for breath.’

Key stats
Market capitalisation£1,908m
No. of shares out690m
No. of shares floating686m
No. of common shareholdersnot stated
No. of employees21829
Trading volume (10 day avg.)2m
Turnover£6,923m
Profit before tax£m
Earnings per share-0.01p
Cashflow per share7.46p
Cash per share111.45p

Scope for outperformance at Balfour Beatty, says Peel Hunt

The scope for margin recovery at Balfour Beatty (BALF) mean shares in the construction company can outperform further, says Peel Hunt.

Analyst Andrew Nussey retained his ‘add’ recommendation and target price of 300p on the stock after a one-line update at the AGM confirming trading was in line. The shares were trading down 1.6%, or 4.7p, at 276p, at the time of writing.

He said there was no change in underlying market dynamics and the ‘strong balance sheet also provides management with options’.

‘The current management team has successfully over-delivered the first phase of the Build to Last programme,’ he said. ‘Moreover, with the legacy issues largely resolved, and the clear potential for margin recovery across relatively robust markets, the shares offer scope for further outperformance.’

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