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The Expert View: Saga, Legal & General and Hammerson

Our daily roundup of analyst commentary on shares, also including Dunelm and John Laing.

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Key stats
Market capitalisation£1,594m
No. of shares out1,120m
No. of shares floating1,111m
No. of common shareholdersnot stated
No. of employees5269
Trading volume (10 day avg.)3m
Turnover£871m
Profit before tax£240m
Earnings per share14.02p
Cashflow per share17.55p
Cash per share4.96p

Saga profit warnings highlights struggles, says Hargreaves

A profit warning from over-50s group Saga (SAGA) saw the share price drop and Hargreaves Lansdown warns that throwing money at the situation may not be the best solution.

Saga announced it expected full year growth in underlying profit before tax to be just 1-2% compared to the 5.5% it achieved last year as it takes a hit on its insurance broking business and feels the impact of the collapse of Monarch Airlines on tour operating. The shares slumped 22.8% to 140p yesterday on the news.

‘The collapse of Monarch Airlines and industry-wide headwinds in home insurance are outside Saga’s control,’ said analyst Nicholas Hyett.

‘But lower reserve releases and a rapid decline in benefits from the introduction of the motor broker panel shouldn’t be coming as a surprise to management.’

He said the fact the company ‘feels the need to throw more cash at customer acquisition is also less than reassuring’.

‘Saga’s pitch was always that its huge mailing list means all the clients it could ever want are just a mail drop away, the extra spending suggests it might not be as clean cut as that,’ said Hyett.

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Key stats
Market capitalisation£15,608m
No. of shares out5,958m
No. of shares floating5,837m
No. of common shareholdersnot stated
No. of employees8253
Trading volume (10 day avg.)17m
Turnover£77,969m
Profit before tax£2,919m
Earnings per share21.13p
Cashflow per share22.17p
Cash per share431.88p

Legal & General makes ‘smart’ sale of savings arm

The disposal of its ‘mature savings business’ is a smart and opportunistic move from Legal & General (LGEN), says Shore Capital.

Analyst Eamonn Flanagan reiterated his ‘buy’ recommendation on the stock after L&G announced the disposal of the mature savings business to ReAssure, an arm of Swiss Re, for £650 million.

The division has been mostly closed to new business and has around one million customers holding pensions, savings and investment products totalling £33 billion.

‘This disposal by L&G is consistent with the group’s emphasis on rationalising its operations, modernising its products and focusing on its key markets…We view this deal as smart, opportunistic, and entirely consistent with the group’s strategy.’

The shares fell 2.3p to 261.7p yesterday.

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Key stats
Market capitalisation£3,980m
No. of shares out793m
No. of shares floating752m
No. of common shareholdersnot stated
No. of employees565
Trading volume (10 day avg.)3m
Turnover£251m
Profit before tax£179m
Earnings per share40.13p
Cashflow per share40.84p
Cash per share9.37p

Hammerson headwinds remain after Intu deal

News that Hammerson (HMSO) and Intu Properties are merging to create a shopping centre giant makes strategic sense but does not alleviate the headwinds in the sector, says Numis.

Analyst Robert Duncan placed both shares ‘under review’ after the companies reached an agreement on an all-share offer by Hammerson for Intu where shareholders will receive 0.475 Hammerson shares for each Intu one they hold.

Duncan said this valued Intu at a 37% discount to net asset value.

‘For Hammerson – whose chief executive and chief financial officer will lead the combined group this looks like an opportunistic attempt to get its hands on Intu’s portfolio, which it believes it will be able to operate and manage more effectively,’ he said.

‘While the merger makes strategic sense, it does not lessen the well-flagged structural headwinds facing the UK’s retail sector, and in particular the uber-mall segment.’

Shares in Hammerson fell 6.2% to 501.5p yesterday on the news while Intu surged 14.4% to 227.7p.

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Key stats
Market capitalisation£1,419m
No. of shares out202m
No. of shares floating98m
No. of common shareholdersnot stated
No. of employees6156
Trading volume (10 day avg.)m
Turnover£956m
Profit before tax£145m
Earnings per share36.09p
Cashflow per share51.04p
Cash per share8.63p

Dunelm shares are overdone, says Jefferies

Jefferies believes the rally in Dunelm (DNLM) shares is ‘overdone’ and it will struggle to grow enough to meet expectations. Analyst Caroline Gulliver retained her ‘underperform’ recommendation but increased the target price from 515p to 560p. The shares fell 4.5p to 705p esterday.

‘We believe the 28% increase in Dunelm’s share price – 22% versus the sector – over the past five months is overdone as we estimate that for Dunelm to reach its market share ambitions it would require a 7.5% like-for-like for eight years,’ she said.

‘Without investment in margins, this seems a stretch to us given competitive pressures from discounters and other retailers with a higher net promoter score [a measure of customer loyalty]. Hence, with our full year 2018-19 forecasts 8-9% below consensus, we maintain an “underperform”.’

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Key stats
Market capitalisation£991m
No. of shares out367m
No. of shares floating366m
No. of common shareholdersnot stated
No. of employees240
Trading volume (10 day avg.)1m
Turnover£261m
Profit before tax£203m
Earnings per share51.40p
Cashflow per share51.62p
Cash per share0.44p

Don’t overlook ‘high-quality’ John Laing, says Peel Hunt

Investors may pass over infrastructure developer John Laing (JLG) but Peel Hunt argues it is high-quality and has good growth prospects.

Analyst Andrew Shepherd-Barron retained his ‘buy’ recommendation and target price of 377p on the shares, which edged half a penny lower to 270.5p yesterday.

‘Anyone looking for a high-quality, international company with good growth prospects and sustainable competitive advantage at a reasonable valuation, need look no further,’ he said.

‘John Laing suffers from neglect, passed over by investors who want either pure-play infrastructure yield or pure-play risk equity growth. Instead it combined the best of both, at a big discount to our fair value, driven in part by political concerns that it is diversifying away from.’

Shepherd-Barron predicted annual total return of 12-13% and recommending investors ‘buy for your pension and buy for growth’.

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