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The Expert View: Vodafone, Ashtead and JD Sports

Our daily roundup of analyst commentary on shares, also including Empiric Student Property and Jackpotjoy.

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Key stats
Market capitalisation£58,648m
No. of shares out27,332m
No. of shares floating27,252m
No. of common shareholdersnot stated
No. of employees111556
Trading volume (10 day avg.)54m
Turnover43,248m EUR
Profit before tax-1,989m EUR
Earnings per share-0.07 EUR
Cashflow per share0.30 EUR
Cash per share0.51 EUR

Vodafone’s Germany splurge is mixed news for dividend

Deutsche Bank is sticking with its ‘buy’ rating on Vodafone (VOD), despite the telecommunications giant’s planned €2 billion investment in a fibre optic broadband network Germany, which will see cashflow dented in the near term.

Analyst Robert Grindle has a target price of 300p on the shares, which edged a penny lower to 215p yesterday.

The telecoms giant announced it would invest €2 billion in Germany over the next four years, connecting rural customers.

Grindle said there would be around a 3% ‘near term free cashflow dent’ which was ‘mixed news for investors hoping for increased dividend cover’.

He added that Vodafone’s plans may push other providers to step up their own fibre broadband plans.

‘Vodafone’s increasing willingness to invest in substantial fibre projects represents a significant risk for other incumbents across Europe,’ he said.

Key stats
Market capitalisation£9,071m
No. of shares out499m
No. of shares floating482m
No. of common shareholdersnot stated
No. of employees14220
Trading volume (10 day avg.)2m
Turnover£3,187m
Profit before tax£501m
Earnings per share100.02p
Cashflow per share226.81p
Cash per share1.26p

Ashtead riding the crest of a wave, says Hargreaves

US president Donald Trump’s promises on infrastructure spending are benefiting equipment rental company Ashtead (AHT) but Hargreaves Lansdown said investors should be aware the business would be affected when the cycle turns.

Ashtead reported a 17% increase in first quarter rental revenues and a 20% increase in operating profit to £266.5 million. The shares jumped 4.5% to £17.59 yesterday.

The group also said it expected demand to rise as the US deals with the aftermath of hurricanes Irma and Harvey.

Analyst George Salmon said conditions had been ‘favourable’ for Ashtead recently thanks to weak sterling and promised US infrastructure spending.

‘Furthermore, Sunbelt, the group’s sizeable US business, looks like it could well be one of the first ports of call in the clean-up operation in both Houston and Florida,’ he said.

‘With Ashtead riding the crest of a wave, it’s easy to see why the group is raising capital expenditure and acquisition outlay. However, investors should remember that it remains a cyclical business and its £2.6 billion debt pile will still need to be services when the cycle turns. Historically the group hasn’t been great at navigating smoothly through the peaks and troughs.’

Key stats
Market capitalisation£3,624m
No. of shares out973m
No. of shares floating404m
No. of common shareholdersnot stated
No. of employees16218
Trading volume (10 day avg.)2m
Turnover£2,379m
Profit before tax£179m
Earnings per share18.38p
Cashflow per share25.37p
Cash per share25.44p

JD Sports shares ‘undervalued’, says Shore Capital.

Shore Capital believes that JD Sports (JD) is undervalued as the retailer reported a 33% increase in profits, with management expecting to deliver at the higher end of full-year expectations.

Analyst George Mensah reiterated his ‘buy’ recommendation on the shares, which jumped 7.6% to 370.6p yesterday.

The sportswear retailer reported a 33% increase in profit before tax to £102.7 million for the first half of the year and like-for-like sales increased 3% despite strong comparative figures for the same period last year.

Management expects profit before tax to be ‘at the upper of current market expectations, ranging from £268 million to £290 million’, said Mensah.

‘Given the outperformance of the company against our first-half estimates and the current guidance, we expect to upgrade our forecasts for the full year to reflect the strong start the business has made to the second half of the year,’ he said.

‘Based on our existing forecasts, JD trades on a full-year 2018 price/earnings ratio of 16 times. We continue to be bullish about JD over the long-term and believe given the current growth of the business as well as the strength of the business model that the shares are undervalued at its current price.’

Nb: JD Sports implemented a 5:1 share split in November last year

Key stats
SectorProperty Specialist
Launch Date30 Jun 2014
DomicileUK
Shares Issued (M)602
Market Capital (£M)685.00
Gross Assets (£M)745.08
Net Assets (£M)642.46
TER (%)2.36
Historic Dividend Yield (%)5.36
Last AGM17 Nov 2016
Next AGM17 Nov 2017

Jefferies: unforeseen costs hit Empiric Student Property

Unforeseen costs at real estate investment trust (Reit) Empiric Student Property (ESP) have seen earnings per share and net asset value (NAV) downgrades from Jefferies.

Analyst Mike Prew retained his ‘buy’ recommendation and target price of 125p but downgraded 2017 earnings per share 48% to 2.8p and NAV 4% to 110p. The shares fell 4.6% to 108.5p yesterday.

‘The portfolio is steadily building out with 71% of the assets operated by Hello Student but there have been a number of one-off costs,’ he said.

Unforeseen costs accounted for a 43% hike in administration charges to £7.6 million, and Prew expected ‘another high second half 2017 admin cost of £6 million before these get pared back’.

The Reit has been quick to deploy the £110 million it received from its equity raise and has acquired four buildings.

‘The internalised operating platform Hello Student will be marketing 61 of the group’s 90 assets… and should encompass the entire portfolio by 2018 thus removing any dependency on external suppliers,’ he said.

Key stats
Market capitalisation£562m
No. of shares out74m
No. of shares floating53m
No. of common shareholdersnot stated
No. of employees243
Trading volume (10 day avg.)m
Turnover£269m
Profit before tax£-41m
Earnings per share-55.13p
Cashflow per share21.01p
Cash per share93.84p

Berenberg: plenty of upside for Jackpotjoy

Digital bingo company Jackpotjoy (JPJ) should benefit from a market where its competitors are struggling and Berenberg believes there is plenty of upside potential.

Analyst Roberta Ciaccia retained her ‘buy’ recommendation and target price of £10.00 on the shares, which were trading at 768.3p yesterday.

Ciaccia said a roadshow confirmed her ‘positive view on the outlook for the group in terms of competition, regulation and deleveraging’, with key players in the UK market ‘either struggling or performing below expectations’.

‘JPJ should benefit from this and we believe its market share is likely to increase from the currently estimated 22%. This should stimulate liquidity, raise jackpot sizes and improve client intake,’ she said.

‘We believe that current trading multiples significantly underestimate the solidity of the digital bingo business and, even more, its deleveraging potential.’

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