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The Expert View: WH Smith, Hilton & Babcock

Our daily roundup of the best analyst commentary on shares, also including DMGT and Marshalls.

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Key stats
Market capitalisation£359m
No. of shares out197m
No. of shares floating184m
No. of common shareholdersnot stated
No. of employees2252
Trading volume (10 day avg.)0m
Turnover£301m
Profit before tax£-6m
Earnings per share-3.25p
Cashflow per share4.94p
Cash per share5.64p

*Correct as at 27 Mar 2014

WH Smith to benefit from high street progress

Improvements on the high street and in travel will benefit WH Smith (SMWH.L) according to Investec, which has increased its target price for the stock from £12.00 to £14.00.

Analyst Kate Calvert reiterated Investec’s ‘buy’ recommendation on anticipation of strong first half results for the newsagent and further indication of franchising plans. She said she was also expecting more detail from management on its personalised card business Funkypigeon.com.

‘We expect management to say more on WH Smith newsagent franchising and potentially on Funkypigeon, which could be a hidden gem if the Photobox (owners of Moonpig) valuation being talked about in the press is anything to go by,’ she said.

Calvert expects profits for the first half of the year before tax to fall slightly due to pension commitments with second half profits becoming stronger following ‘steady progress’ from the high street and as travel continues its cyclical recovery.

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Key stats
Market capitalisation£363m
No. of shares out72m
No. of shares floating42m
No. of common shareholdersnot stated
No. of employees2266
Trading volume (10 day avg.)0m
Turnover£1,031m
Profit before tax£18m
Earnings per share24.67p
Cashflow per share46.70p
Cash per share44.35p

*Correct as at 27 Mar 2014

Hilton faces headwinds but still manages upgrade

Meat packaging company Hilton Foods (HFG.L) may be facings currency headwinds and had its forecasts trimmed but Numis has still upgraded the stock.

Analyst Charles Pick has upgraded the company from ‘buy’ to ‘add’ and placed a target price of 550p on the shares.

Although currency will cause problems for 2014 full year results, forcing Numis to shave £0.5 million off estimated profits before tax, Pick said the company will benefit ‘materially’ in 2015 from extra Tesco business in the UK and a joint venture with Woolworths in Australia.

‘Markets in Europe remain challenging – muted consumer spending and high meat prices – but this should not surprise. 78% of sales are made outside the UK so there is also a warning note on foreign exchange, largely for the Australian dollar and Swedish Krona,’ said Pick. ‘However, fundamentally this remains a very sound situation.’

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Key stats
Market capitalisation£363m
No. of shares out72m
No. of shares floating42m
No. of common shareholdersnot stated
No. of employees2266
Trading volume (10 day avg.)0m
Turnover£1,031m
Profit before tax£18m
Earnings per share24.67p
Cashflow per share46.70p
Cash per share44.35p

*Correct as at 27 Mar 2014

Daily Mail receives online boon and has decisions to make

Liberum has reiterated its ‘buy’ recommendation for Daily Mail General Trust (DMGT.L) following a five-month trading update.

Analysts Lisa Hau and Ian Whitakker placed a target price of £11.55 on the shares as group revenue increased 6%, in line with the first quarter and business-to-business publishing showed consistent 10% growth.

They noted that digital revenue had ‘again offset the decline in print advertising – with newspapers down 3% and websites up 52%’.

There are also new products in the pipeline and the publishing group still has decisions to make about its 52.5% stake in property search website Zoopla, which Hau and Whitakker said could provide returns for shareholders.

‘We maintain our full-year 2014 earnings per share: 56.6p (versus consensus 53.5p),’ they said. ‘DMGT are exploring options for its 52.5% stake in Zoopla which we value at £575 million which could lead to cash returns. Also its 38.7% stake in regional newspapers group Local World which we value conservatively at £90 million.’

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Key stats
Market capitalisation£4,578m
No. of shares out362m
No. of shares floating354m
No. of common shareholdersnot stated
No. of employees26000
Trading volume (10 day avg.)1m
Turnover£3,029m
Profit before tax£190m
Earnings per share52.45p
Cashflow per share84.66p
Cash per share27.79p

*Correct as at 27 Mar 2014

Babcock announces rights issue on back of acquisition

Engineering support services company Babcock International (BAB.L) has announced the acquisition of aerial services business Avincis Group and a £1.1 billion rights issue.

Shore Capital analyst Robin Speakman said while the Avincis acquisition was ‘significant’ he maintained a ‘hold’ recommendation.

‘The company has announced the acquisition of specialist helicopter and fixed wing services group Avincis for £920 million in cash plus the assumption of £705 million of net debt attaching to the business (so £1.6 billion in total),’ said Speakman.

‘This is to be funded by internal cash resources from Babcock and a fully underwritten rights issue to raise £1.1 billion in new equity. This acquisition takes Babcock further into civil sectors, particularly into oil and gas support, but clearly brings synergies with existing operations including with military servicing.’

The buy will be ‘earnings enhancing’ in the first year according to management as Avincis brings an order book of around £1.9 billion and annual revenue of approximately £485 million.

‘We have been waiting for a significant acquisition from Babcock, “hold” for the present,’ said Speakman.

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Key stats
Market capitalisation£359m
No. of shares out197m
No. of shares floating184m
No. of common shareholdersnot stated
No. of employees2252
Trading volume (10 day avg.)0m
Turnover£301m
Profit before tax£-6m
Earnings per share-3.25p
Cashflow per share4.94p
Cash per share5.64p

*Correct as at 27 Mar 2014

Marshalls to cash in on UK construction upturn

Marshalls (MSLH.L), home improvement and landscaping market supplier, is an ‘attractive UK recovery play’ as the construction industry picks up, according to Peel Hunt.

Analyst Clyde Lewis retained a ‘buy’ recommendation and increased the target price from 180p to 190p as Marshalls finished 2013 with revenue up 2% at £307 million.

‘The outlook for the sector remains positive and the group has reported a strong start to 2014. We continue to believe the business is one of the most operationally geared companies in the UK market, and that it will be a major beneficiary of growing construction volumes along with rising prices,’ said Lewis.

Trading in 2014 has started strongly, with 18% growth in sales in January, February and early March against ‘very easy – weather-hit – comparisons from last year’. The group is now focused on increasing output to meet demand and ‘bolstering the strong brand with other new products and services, as well as developing new strategic growth initiatives’.

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