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The Expert View: Thomas Cook, Prudential & Rio Tinto

Our daily roundup of analyst commentary on shares, also including Ashmore and Henderson.

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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£1,292m
No. of shares out1,536m
No. of shares floating1,388m
No. of common shareholdersnot stated
No. of employees21940
Trading volume (10 day avg.)5m
Turnover£7,812m
Profit before tax£12m
Earnings per share0.78p
Cashflow per share14.30p
Cash per share115.64p

Small victories won’t help Thomas Cook, says Hargreaves Lansdown

Thomas Cook (TCG) is battling a difficult European market but Hargreaves Lansdown says at least things aren’t getting worse for the travel operator.

In its first quarter trading statement it reported like-for-like revenues rising £14 million to £1.6 billion and losses improving to £49 million from £50 million the previous year. However, it is having to deal with a declining demand for holidays in Turkey.

The shares dropped 7p to close 7.7% lower at 86p yesterday, drawing a line under a rally that has seen them advance 38% in the past six months.

Laith Khalaf, analyst at Hargreaves Lansdown, said: ‘Times are tough in the European travel industry and Thomas Cook isn’t having the best of it, though the good news is things don’t seem to be getting any worse.’

He said broadly flat revenues on the previous year ‘represents a small victory against such a competitive backdrop’.

Poor sales isn’t the only problem that Thomas Cook faces, with concerns over executive pay refusing to go away. More than a fifth of shareholders voted against pay policy, including major backer Standard Life Investments.

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Key stats
Market capitalisation£40,892m
No. of shares out2,581m
No. of shares floating2,568m
No. of common shareholdersnot stated
No. of employees25512
Trading volume (10 day avg.)5m
Turnover£41,305m
Profit before tax£2,579m
Earnings per share100.90p
Cashflow per share105.95p
Cash per share302.51p

Pru could soon trade at a premium, says Barclays

Supportive news flow should start to push Prudential (PRU) back to a premium valuation, according to Barclays, which rates the stock its top insurance pick.

Analyst Alan Devlin reiterated his ‘overweight’ recommendation and target price of £18.44 on the stock, which added 33p or 2% to close at £16.

‘Prudential is our top pick among European insurers, as we view it as the only large-cap growth stock in the sector trading at the sector valuation,’ he said.

‘The stock has traded in line with its UK peers but lagged its closest US peers. However, we believe news flow is starting to be supportive for Prudential and the stock could start to re-rate to a deserved premium to the sector.’

In particular, Devlin said Donald Trump’s plans to revise rules around annuities ‘could be a catalyst for variable annuity sales’ in the US.

‘If Prudential’s variable annuity sales recover to 2015 levels then that would add an incremental 2% to our US and 1% to our group earnings per share compound annual growth rate through 2021,’ he said.

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Key stats
Market capitalisation£60,279m
No. of shares out1,799m
No. of shares floating1,182m
No. of common shareholdersnot stated
No. of employees54888
Trading volume (10 day avg.)5m
Turnover26,945m USD
Profit before tax3,683m USD
Earnings per share2.04 USD
Cashflow per share4.22 USD
Cash per share3.80 USD

China’s mining reforms won’t help Rio Tinto, says Liberum

Reforms to China’s mining industry could benefit Rio Tinto (RIO) but Liberum believes it is too early to get excited.

Analyst Richard Knights retained his ‘sell’ recommendation and target price of £24.00 on the stock, which edged 20p, or 0.6%, lower at £33.57.

‘Supply side reform in China was a major driver of the mining sector in 2016 and speculation that it could spread to the aluminium sector has helped prices to increase 7% this year,’ he said.

‘However, the proposed reforms are unlikely to have a material positive influence on prices given they will offset only a third of capacity growth this year, meanwhile apparent consumption has nudged only marginally up. Given recent moves in iron ore, other aspects of Rio’s portfolio are dwarfed in terms of earnings impact.’

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Key stats
Market capitalisation£2,384m
No. of shares out707m
No. of shares floating380m
No. of common shareholdersnot stated
No. of employees266
Trading volume (10 day avg.)1m
Turnover£212m
Profit before tax£128m
Earnings per share18.08p
Cashflow per share18.93p
Cash per share82.66p

Peel Hunt: Ashmore moving in the right direction

Emerging markets fund manager Ashmore (ASHM) has reported interim results ahead of expectations but Peel Hunt is waiting for more evidence of permanent changes.

Analyst Stuart Duncan retained his ‘hold’ recommendation and put his target price ‘under review’ following the interim results. The stock gained 17p, or 5.4%, to close at 336p on Thursday.

‘Reported profits were significantly ahead of expectations, albeit largely a result of seed capital gains, foreign exchange and performance fees,’ he said.

‘However, even looking [at] adjusted earnings, the results were still c.£12 million ahead of consensus. Although estimates will move higher [following the results], we maintain our “hold” recommendation until there is more evidence on positive flow momentum.’

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Key stats
Market capitalisation£2,402m
No. of shares out1,132m
No. of shares floating1,036m
No. of common shareholdersnot stated
No. of employees1016
Trading volume (10 day avg.)4m
Turnover£773m
Profit before tax£161m
Earnings per share14.10p
Cashflow per share19.77p
Cash per share52.30p

Considerable value at Henderson, says Shore Capital

Shore Capital is ‘surprised’ that Henderson Group (HGG) shares have lost gains made when the asset manager announced plans to merge with Janus Capital last year.

Analyst Paul McGinnis retained his ‘buy’ recommendation on the stock, which shed 4p, or 1.9%, to 212.8p after full-year results. Although the figures were in line, it was ‘not a vintage’ year, he said.

‘We have been surprised to see Henderson shares give up all of the gains initially made when the Janus deal was announced on 3 October - the shares closed at 270p that day - and notably underperform the sector in recent weeks,’ he said.

‘While the impending loss of the UK quote when the deal completes may have restricted an element of natural buying interest, we would view this as an excellent opportunity for investors happy to be swapped into the US-listed shares on completion.’

He added there was upside to his last ‘fair value’ target of 300p and said ‘there is considerably value currently in this well-managed and well-positioned asset manager’.

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