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The Expert View: William Hill, Shell and Randgold

A roundup of analysts' commentary on shares, also including Tyman and FirstGroup.

Key stats
Market capitalisation£6,677m
No. of shares out397m
No. of shares floating245m
No. of common shareholdersnot stated
No. of employees8343
Trading volume (10 day avg.)1m
Profit before tax£398m
Earnings per share100.00p
Cashflow per share128.14p
Cash per share311.59p

*Correct as at 17 Jan 2014

William Hill: a ‘Tardis Investment’

Don’t be fooled by the headline figures from William Hill’s fourth quarter trading statement, says Numis analyst Ivor Jones – it’s a ‘Tardis Investment’ that’s bigger on the inside.

Investors didn’t take well to the bookmakers’ forecast of full year profits of £334 million for 2013 on Friday, pushing the shares to the bottom of the FTSE 100. But, says Jones: ‘The future of the business is the online sportsbook and this grew player numbers and wagers materially in FY13’.

‘The retail business suffered abnormal cost inflation (duty and content) which should now abate and, with new machines, Retail should, results permitting, be able to return to growth.’

Acknowledging the company’s ‘dire’ performance so far this year, Jones concluded: ‘We believe William Hill's share price will make up lost ground in 2014 (boosted by sentiment around the World Cup) and we reiterate our Buy rating and 550p price target.’

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Key stats
Market capitalisation£3,126m
No. of shares out867m
No. of shares floating865m
No. of common shareholdersnot stated
No. of employees16883
Trading volume (10 day avg.)5m
Profit before tax£190m
Earnings per share24.66p
Cashflow per share36.34p
Cash per share21.49p

*Correct as at 17 Jan 2014

Randgold: Attractive entry point

The next month will be ‘catalyst-rich’ for Africa-focused gold miner Randgold, with Q4 results, M&A in the gold industry, possible deregulation in India (the world’s biggest physical consumer of gold) and a mine site visit for analysts all providing potential for a turn-around in the share price, say Barclays analysts.

Randgold’s 15% share price underperformance relative to global gold peers since the start of December ‘is comparable to some of the biggest de-ratings over the last three years and has left the stock trading close to the widest PER discount to peer Fresnillo seen in recent years,’ said the team led by Amos Fletcher.

Even though the gold price will likely remain ‘flat’ in 2014, the analysts see ‘an attractive entry point’ for Randgold shares: growing production and reducing costs should lead to strong earnings per share (EPS) growth, they say, while the shares are cheap compared to rival stocks.

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Key stats
Market capitalisation£426m
No. of shares out170m
No. of shares floating164m
No. of common shareholdersnot stated
No. of employees1888
Trading volume (10 day avg.)0m
Profit before tax£-22m
Earnings per share-16.93p
Cashflow per share4.98p
Cash per share27.07p

*Correct as at 17 Jan 2014

A stock to profit from US and UK housing recoveries

Tyman, the supplier of building products to the door and window industry, is well placed to benefit from property market recoveries in both the UK and US, say analysts at Berenberg bank, who have given the shares their top ‘Alpha Seal of Approval’.

As well as these two countries, which account for most of Tyman’s revenues, the company also benefits from ‘ambitious management’, said analysts Robert Chantry and Benjamin May. ‘Management is establishing a track record in creating value from acquisitions,’ they noted.

The analysts, who started coverage of the shares with a ‘buy’ rating and 327p price target, said: ‘We believe there is still much to play for given the extent to which the US housing markets remain below normalised levels and the medium term desire of management to find further material growth.’

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Key stats
Market capitalisation£1,699m
No. of shares out1,205m
No. of shares floating1,188m
No. of common shareholdersnot stated
No. of employees120475
Trading volume (10 day avg.)4m
Profit before tax£35m
Earnings per share5.89p
Cashflow per share78.21p
Cash per share115.40p

*Correct as at 17 Jan 2014

FirstGroup gets schooled

Weakness in FirstGroup’s US school bus business was a disappointment, City analysts agreed, in a third quarter financial update that otherwise did what was expected.

Firstgroup reported overall trading ‘in line with expectations’, with ‘slower progress’ in First Student, offsetting a ‘good performance’ in the firms four other divisions.

The update from the bus and rail company comes as it attempts to turn round its fortunes after a rights issue and sharp share price decline last year. It is now under pressure from a US hedge fund to break up its businesses.

‘A slower rate of margin improvement at First Student should be viewed as disappointing, even if overall trading remains in line thanks to strength at the other divisions’, summed up Liberum analyst Gerald Khoo.

Khoo downgraded the shares to ‘hold’ from ‘buy’ as FirstGroup shares have now overtaken his target price of 135p.

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Key stats
Market capitalisation£136,003m
No. of shares out6,312m
No. of shares floating6,301m
No. of common shareholdersnot stated
No. of employees97000
Trading volume (10 day avg.)4m
Turnover237,577m USD
Profit before tax12,992m USD
Earnings per share2.12 USD
Cashflow per share3.79 USD
Cash per share1.41 USD

*Correct as at 17 Jan 2014

Shell profit warning, but don’t forget 5% divi yield

Shell still yields 5%, while Friday’s profit warning could actually encourage new chief executive Ben van Beurden to be more radical with his plans, said upbeat Charles Stanley analyst Tony Shepard as he maintained his ‘accumulate’ recommendation on the shares.

Shell told investors on Friday that it expects adjusted earnings for the three months to the end of December of $2.9 billion, much lower than expected by the City. Shell, a favourite among dividend-seeking investors, blamed oil and gas prices and difficult industry refining conditions.

Ben van Beurden, Shell’s new chief executive, said: ‘Our 2013 performance was not what I expect from Shell. Our focus will be on improving Shell's financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.’

Noting a relatively robust share price reaction to the profit warning, Shepard said: ‘There are likely to be some earnings downgrades for 2014 but the Q4 warning could largely reflect the high exploration write-offs and a disproportionate negative hit from maintenance on some of its high margin activities. ‘

Shell’s Q4 results are due on 30th January and there is an Investor Day in March. ‘The share price still offers a dividend yield of 5% and ahead of those announcements we maintain our Accumulate recommendation,‘ said Shepard.

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