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The Expert View: Shell, Asos and Kingfisher

Our daily roundup of analyst commentary on shares, also including Howden Joinery and Breedon Aggregates.

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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£203,681m
No. of shares out8,227m
No. of shares floating8,210m
No. of common shareholdersnot stated
No. of employees92000
Trading volume (10 day avg.)9m
Turnover200,610m USD
Profit before tax22,372m USD
Earnings per share0.50 USD
Cashflow per share3.03 USD
Cash per share1.98 USD

Time for Shell to scrap the scrip, says Hargreaves

Royal Dutch Shell (RDSb) is at a point where it can and should scrap its scrip dividend, says Hargreaves Lansdown.

Third quarter results from the oil giant showed profits were 47% ahead of this time last year at $4.2 billion.

Analyst Nicholas Hyett said the dividend remained unchanged at 47 cents but the performance in cashflow was likely to increase calls for management to scrap a scrip dividend policy ‘that is seeing it issue almost $1 billion of new shares to shareholders every quarter’.

‘That can’t come soon enough for us,’ he said. ‘The scrip has served a useful purpose, allowing Shell to maintain its dividend when cash was strapped. But the pressure is easing and issuing shares that are equivalent to over 1% of the company’s market cap on an annual basis is not only diluting existing shareholders but increasing future dividend liabilities as well.’

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Key stats
Market capitalisation£4,817m
No. of shares out84m
No. of shares floating53m
No. of common shareholdersnot stated
No. of employees3463
Trading volume (10 day avg.)1m
Turnover£1,924m
Profit before tax£122m
Earnings per share76.58p
Cashflow per share127.11p
Cash per share192.14p

Shore Capital positive on developments at Asos

Online clothing retailer Asos (ASOS) has launched a ‘try before you buy’ app alongside a 30-day free credit facility, which Shore Capital said was an ‘innovative development’ for the sector.

Analyst Clive Black reiterated his ‘buy’ recommendation on the stock, which was trading up 2%, or 117p, at £56.92 at the time of writing.

The retailer is offering customer the chance to order any products but only pay for what they keep, with the chance to pay within 30 days with no interest or fees.

Black said ‘at first glance, this looks like another innovative development from Asos’ that would put more pressure on high street clothing and department stores.

‘Asos trades on a forward one year price/earnings ratio of 56 times...we reiterate our “buy” recommendation and our thoughts around the investment case remain unchanged: we view Asos as one of the strongest operators in online retail supported by a well-defined proposition and structural growth underpinning the sub-sector,’ he said.

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Key stats
Market capitalisation£6,739m
No. of shares out2,172m
No. of shares floating2,158m
No. of common shareholdersnot stated
No. of employees77000
Trading volume (10 day avg.)10m
Turnover£11,225m
Profit before tax£1,046m
Earnings per share26.96p
Cashflow per share38.14p
Cash per share35.49p

Confidence in Kingfisher growing, says Jefferies

Shares in B&Q owner Kingfisher (KGF) have rallied 10% in recent weeks, which Jefferies says shows improving confidence in the French economy and the company’s turnaround plan dubbed One Kingfisher.

Analyst James Grzinic retained his ‘hold’ recommendation and target price of 310p on the stock, which was trading down 0.5%, or 1.6p, at 307p at the time of writing.

‘Kingfisher’s recent rally from the lows reflects the hope of improving French macro tailwinds and reducing One disruption impacts,’ he said.

‘We are unsure that the upcoming third quarter sales will provide more supporting evidence on either front. In the immediate future, Kingfisher’s historical negative correlation to UK interest rates may be the most meaningful driver.’

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Key stats
Market capitalisation£2,820m
No. of shares out621m
No. of shares floating614m
No. of common shareholdersnot stated
No. of employees8852
Trading volume (10 day avg.)3m
Turnover£1,307m
Profit before tax£261m
Earnings per share29.39p
Cashflow per share33.19p
Cash per share36.05p

More to come from Howden, says Liberum

Kitchen cabinet maker Howden Joinery (HWDN) has cemented its place as Liberum’s top pick in building materials after stronger than expected sales growth.

Analyst Charlie Campbell retained his ‘buy’ recommendation and target price of 506p on the stock, after it reported stronger than expected sales growth for the second half of 2017. Like-for-like sales growth increased from 2.4% in the first half to 4% in the second.

At the time of writing the shares were trading up 6.8%, or 28p, at 440p.

‘Management also says that gross margins have been in line with expectations and that it expects to hit market consensus expectations,’ he said.

‘Howden is our top pick in building materials as it has a long track record of growth, with opportunity for continuing roll-out of the branch network. The group has net cash worth 9% of its market cap on the balance sheet and trades at only around 13x 2018 price/earnings. We see over 25% total shareholder return upside to our target price of 506p.’

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Key stats
Market capitalisation£m
No. of shares out1,447m
No. of shares floating1,116m
No. of common shareholdersnot stated
No. of employees1663
Trading volume (10 day avg.)1m
Turnover£455m
Profit before tax£83m
Earnings per share2.83p
Cashflow per share4.79p
Cash per share0.33p

Numis: growing potential at Breedon

Numis has greater confidence that building materials supplier Breedon Aggregates (BREE) will hit its 2020 targets and potentially make acquisitions along the way.

Analyst Howard Seymour retained his ‘add’ recommendation and target price of 96p on the stock, after the acquisition of Hope Cement Works, which he said had ‘provided a major platform for growth for Breedon’.

He is also confident that ‘reclassification of the divisions to reflect product and geographic mix has led to an interesting impact on returns, so that reiteration of 2020 margin targets is in fact an upgraded objective’.

‘In our view, this illustrates the greater confidence emanating from management post the acquisition of Hope, as we believe this sets the base for sustained sector-leading organic performance, while acquisitive potential provides additional upside,’ said Seymour.

Shares were trading up 1.7%, or 1.5p, at 87p at the time of writing.

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