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The Expert View: Tesco, Hargreaves Services and Tullow Oil

The best analyst commentary on shares, also featuring Sage and Dewhurst.

Our daily round-up of analyst recommendations and commentary, featuring Tesco, Hargreaves Services, Tullow Oil, Sage and Dewhurst.

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Key stats
Market capitalisation£27,056m
No. of shares out8,041m
No. of shares floating8,002m
No. of common shareholdersnot stated
No. of employees519671
Trading volume (10 day avg.) 14m
Turnover£64,539m
Profit before tax£2,948m
Earnings per share36.64p
Cashflow per share55.36p
Cash per share43.02p

*Correct as at 5 Dec 2012

Tesco’s mixed progress divides analysts

Stock market reaction to Tesco (TSCO.L)’s quarterly sales announcement yesterday – which showed a UK sales decline, but included news of a long-awaited review of the chain’s loss-making US business – was decisive: 'buy Tesco shares'.

The response from analysts though was mixed. The City is divided over whether Tesco can deliver its turnaround plan after the shock profits warning in January. (Citywire's Smart Investor remains a fan, however.)

‘From a share price perspective even if Tesco does have a relatively good Christmas, there will still be no visibility on whether UK profits have bottomed until the second half of 2013,’ commented Kate Calvert of Seymour Pierce, reiterating her ‘reduce’ rating on the shares as ‘there is a high risk that things will get worse before they get better’.

Nick Coulter of Nomura, who has a ‘buy’ rating on the shares, said the strategic review of the US business ‘points to a management team willing to act decisively to improve its capital allocation and discipline’.

Sam Hart at Charles Stanley sat somewhere in the middle: ‘The valuation is undemanding, but limited visibility on earnings means our recommendation stays at Hold.’

Shares in the group closed at 336.91p on Wednesday, up 10.26p or 3.14%.

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Key stats
Market capitalisation£165m
No. of shares out27m
No. of shares floating23m
No. of common shareholdersnot stated
No. of employees2627
Trading volume (10 day avg.) 0m
Turnover£688m
Profit before tax£29m
Earnings per share106.13p
Cashflow per share200.88p
Cash per share169.28p

*Correct as at 5 Dec 2012

Panmure Gordon puts Hargreaves Services under review amid Belgian investigation

Paul Jones, analyst at Panmure Gordon, has placed his target price for Hargreaves Services (HASE.L) under review after the coal miner revealed financial irregularities at its Belgian subsidiary.

Two employees have been suspended amid an investigation into an 'overstatement' of stock values and credit notes at the group's Belgian subsidiary.

The group said in a statement that it doesn't expect the impact of this balance sheet write-off to exceed £15 million, although it admitted it's hard to estimate at this stage.

Jones said the announcement rounds off a year to forget for Hargreaves, which also saw its Maltby mine in Yorkshire closed because of geological problems.

'We expect a pre-close statement within the next two weeks and further news on this issue hopefully by then,' the analyst said. 'For now, we place forecasts and price target under review, though clearly this will not be taken well in the short term.'

Shares in the group closed at 602.82p on Wednesday, down 47.18p or 7.26%.

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Key stats
Market capitalisation£11,492m
No. of shares out907m
No. of shares floating844m
No. of common shareholdersnot stated
No. of employees1548
Trading volume (10 day avg.) 2m
Turnover1,432m USD
Profit before tax403m USD
Earnings per share0.45 USD
Cashflow per share0.84 USD
Cash per share0.21 USD

*Correct as at 5 Dec 2012

Liberum upgrades Tullow to 'buy'

Andrew Whittock, analyst at Liberum Capital, has upgraded Tullow Oil (TLW.L) from 'hold' to 'buy' despite Tuesday's setback in French Guiana, saying its impressive track record suggests it'll come up trumps again before too long.

Tullow, a Citywire Top Stock due to its top 10 position in Tom Dobell's M&G Recovery fund, was the FTSE 100's biggest faller on Tuesday, losing about 6%, after its Zaedyus-1 well failed to encounter commercially viable reserves.

However, Whittock said the explorer's premium valuation remains justified. 'Unlike its peers, Tullow’s market value stands at a significant, c.$8.9 billion premium to our net asset valuation.

'We believe this is justified by its demonstrable track record of adding value and argue that realistic expectations of further exploration success point to material share price upside.'

Shares in the group closed at £12.54 on Wednesday, down 28.14p or 2.18%.

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Key stats
Market capitalisation£3,667m
No. of shares out1,224m
No. of shares floating1,214m
No. of common shareholdersnot stated
No. of employees12385
Trading volume (10 day avg.) 3m
Turnover£1,334m
Profit before tax£256m
Earnings per share19.29p
Cashflow per share23.05p
Cash per share13.81p

*Correct as at 5 Dec 2012

Numis welcomes 'net positive' results at Sage Group

Accounting software firm Sage Group (SGE.L) posted a 4% increase in full-year profits from higher sales and subscriptions.

Adjusted pre-tax profits came in at £365.3 million in the past 12 months and earnings per share dropped 4% to 18.63p as the group bought back £299.8 million in shares.

David Toms, analyst at Numis, added: ‘Overall we think this is a modestly net positive set of results, with an inline performance where the market probably feared worse, better mix and prospect of greater cash returns, partly offset by a relatively weak start with the early cloud product.’

Toms held an ‘add’ rating on the stock with a target price of 342p.

Shares in the group closed at 303.67p on Wednesday, down 7.53p or 2.42%.

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Key stats
Market capitalisation£38m
No. of shares out9m
No. of shares floating3m
No. of common shareholdersnot stated
No. of employees359
Trading volume (10 day avg.) 0m
Turnover£41m
Profit before tax£3m
Earnings per share34.35p
Cashflow per share43.52p
Cash per share58.85p

*Correct as at 5 Dec 2012

Seymour Pierce backs Dewhurst with 'buy' recommendation

Caroline de La Soujeole, analyst at Seymour Pierce, has reiterated her 'buy' recommendation on electrical component maker Dewhurst (DWHT.L), saying the valuation of the shares doesn't reflect the underlying strength of the company.

In the year to the end of September sales rose 24% to £51.6 million, and adjusted pre-tax profit was up 26% to £5.4 million.

The analyst said the subdued economic environment over the past few years has hit earnings from lift refurbishment work, but this work can only be put off for so long and now it's starting to filter through, hence the fillip to sales.

'Today’s FY12 results underpin our view that the company is a well- managed business, with several good growth opportunities and benefiting from a strong balance sheet,' de La Soujeole said.

'We believe this is not fairly reflected in the valuation (one-year price-to-earnings ratio of 7.4x). We are buyers with a 380p target price.

Shares in the group closed at 326p on Wednesday, up 1p or 0.31%.

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