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The Expert View: Sky, Foxtons and WH Smith

Our daily roundup of analyst commentary on shares, also including Norcros and Polar Capital.

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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£16,004m
No. of shares out1,719m
No. of shares floating979m
No. of common shareholdersnot stated
No. of employees28123
Trading volume (10 day avg.)3m
Turnover£12,916m
Profit before tax£2,136m
Earnings per share39.97p
Cashflow per share95.63p
Cash per share145.43p

Liberum upgrades Sky after shares fall

Liberum has upgraded Sky (SKYB) as it does not think the share price reflects the Fox bid being cleared by regulator.

Analyst Ian Whittaker upgraded his recommendation from ‘hold’ to ‘buy’ with a target price of £10.60 after the shares closed at 914p on Wednesday, a significant discount to the £10.75 per share Fox bid.

The shares jumped 1.8% to 929.5p yesterday on the news. Whittaker said concerns that the political environment, particularly within the Labour party, was hostile to the bid were ‘overdone’, saying he believed ‘the deal will pass’.

‘It’s likely that the deal will be completed by the end of the first half of 2018 which would mean a Labour government would have to be incoming before that date to pose a threat. We do not think this is likely,’ he said.

‘First quarter results look broadly healthy and the shares have fallen back to a level which we think do not reflect the likelihood of the Fox bid for Sky being cleared by the regulators, thus we think Sky offers a short-term investment opportunity.’

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Key stats
Market capitalisation£179m
No. of shares out275m
No. of shares floating247m
No. of common shareholdersnot stated
No. of employees1337
Trading volume (10 day avg.)2m
Turnover£133m
Profit before tax£24m
Earnings per share5.70p
Cashflow per share7.53p
Cash per share3.45p

Foxtons’ fees are ‘indefensible’, says Berenberg

Berenberg has initiated coverage of Foxtons (FOXT) with a ‘sell’ as it believes competition means the estate agent can no longer justify its charges.

Analyst Ian Osburn initiated with a ‘sell’ recommendation and a target price of 50p on the shares, which fell 2.3% to 65p yesterday.

He said earnings at the premium London estate agent had been hit by online estate agent Purplebricks.

‘We see its service as offering a good customer experience but its cost base remains high and fixed during a slowing of the London sales market, fee pressure from the success of Purplebricks in core areas and declining rents,’ he said.

‘We expect Foxtons’ fee of 2.5-3% to be indefensible when Purplebricks charges the equivalent of 0.2%. Purplebricks has built a sales business in London that is half the size of Foxtons in terms of volumes in only two years.’

On the lettings side, Foxtons is facing reduced rents and as a premium fee agents ‘the tenant fee ban potentially affects it the most’.

‘We expect Foxton’s high-quality management to overcome these issues, but earnings to be depressed while they do, with a 30% chance of a capital raise.’

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Key stats
Market capitalisation£2,274m
No. of shares out111m
No. of shares floating108m
No. of common shareholdersnot stated
No. of employees13769
Trading volume (10 day avg.)m
Turnover£1,212m
Profit before tax£169m
Earnings per share93.91p
Cashflow per share126.96p
Cash per share33.63p

Hargreaves Lansdown: WH Smith travelling in the right direction

WH Smith (SMWH) has repositioned itself to ensure it doesn’t suffer at the hands of falling high street footfall, which Hargreaves Lansdown said should only be a small headwind in the future.

Full-year profits from the stationer showed profit before tax growth of 7% to £140 million, with travel sales from airports and train stations increasing 9%, putting it ahead of the high street in terms of both revenue and profit.

Nicholas Hyett said the results were ‘an important milestone for WH Smith’ and the trend in travel was likely to continue.

‘Travel is an attractive industry, not least because selling impulse products to a captive audience is all but immune to online competition,’ he said. ‘Frequently the only shop on a train platform, WH Smith is able to sustain high margins and sales are resilient.’

The shares edged 4p lower to £20.67 yesterday.

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Key stats
Market capitalisation£109m
No. of shares out62m
No. of shares floating55m
No. of common shareholdersnot stated
No. of employees2087
Trading volume (10 day avg.)m
Turnover£271m
Profit before tax£29m
Earnings per share13.46p
Cashflow per share25.50p
Cash per share61.22p

Norcros is ‘significantly undervalued’, says Numis

Shares in bathroom supplier Norcros (NXR) have dipped and Numis believes investors are significantly undervaluing the business.

Analyst Christen Hjorth reiterated his ‘buy’ recommendation and target price of 300p on the shares, which jumped 6.5% to 179p yesterday.

‘Norcros’ share price is down 5% year-to-date and the group now trades on a [forward] price/earnings ratio of 5.7x and dividend yield of 4.8%,’ he said.

‘We continue to believe that this significantly undervalues a business that has recorded revenue growth of 8% compound annual growth rate (CAGR) ove the last four years and profit before tax growth of 19% CAGR.’

The most recent update from the group also shows ‘that strong organic progression is being maintained, and with balance sheet optionality, we believe that incremental growth could be driven through mergers and acquisitions’, said Hjorth.

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Key stats
Market capitalisation£445m
No. of shares out92m
No. of shares floating64m
No. of common shareholdersnot stated
No. of employees114
Trading volume (10 day avg.)m
Turnover£75m
Profit before tax£21m
Earnings per share16.99p
Cashflow per share17.52p
Cash per share79.81p

Peel Hunt upgrades Polar Capital

Peel Hunt has upgraded Alternative Investment Market-listed Polar Capital (POLR) following a quarterly update that showed momentum in both inflows and fees.

Analyst Stuart Duncan upgraded his recommendation from ‘add’ to ‘buy’ and increased the target price from 480p to 560p on the stock, after the investment manager reported assets under management had increased to £10.6 billion in the quarter, up 6% on the previous three months.

‘Polar’s update is encouraging both in terms of momentum in net inflows and higher than expected performance fees,’ he said.

‘The net effect is a significant upgrade to profit estimates - we increase our core net management fee estimates by 10%.’

The shares were flat at 489.2p yesterday.

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