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The Expert View: WPP, Meggitt and Costain

Our daily roundup of analyst commentary on shares, also including Provident Financial.

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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£18,018m
No. of shares out1,273m
No. of shares floating1,225m
No. of common shareholdersnot stated
No. of employees198000
Trading volume (10 day avg.)4m
Turnover£14,389m
Profit before tax£1,400m
Earnings per share108.00p
Cashflow per share148.87p
Cash per share190.26p

WPP feeling the impact of media slowdown, says Hargreaves

Steve Clayton was hit by a 10.9% fall in the shares of WPP (WPP), a 3.2% holding in his HL Select UK Growth Shares fund, yesterday, but is remaining sanguine.

WPP reported like-for-like sales down 0.5% in the first half of the year, and warned sales could fail to grow over the full year.

‘Life is getting tougher in the media world, with WPP experiencing a slowdown in trading in June and July, spread across much of the world and in many different media sectors,’ said Clayton.

'It is hard for all players in media-land at the moment; clients are keeping a tight lid on spending and procurement departments are ruthless in the way they push agencies to lower prices.'

He said he expected estimates to be trimmed following the update but ‘we don’t expect to see the numbers move by much overall’.

‘The shares are currently trading at a discount to their longer run average rating and the prospective yield of over 4% could be supportive.’

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Key stats
Market capitalisation£3,951m
No. of shares out776m
No. of shares floating769m
No. of common shareholdersnot stated
No. of employees11210
Trading volume (10 day avg.)1m
Turnover£1,992m
Profit before tax£171m
Earnings per share21.78p
Cashflow per share47.66p
Cash per share22.41p

Jefferies: more to come from Meggitt in next year

Jefferies has upgraded Meggitt (MGGT) as it expects the global engineering group to prove it has ‘rejuvenated’ in the next 12 months.

Analyst Sandy Morris upgraded his recommendation from ‘hold’ to ‘buy’ and raised his target price from 500p to 600p. The shares rose 2.8% to 511.3p yesterday.

‘Meggitt’s rejuvenation has taken a lot more than a good night’s sleep,’ he said. ‘The process will not be complete for some years, but with an “unprecedented” number of parts and systems won on new aircraft/engine programmes, its efficacy should be apparent within 12 months.’

He added that ‘the years of investment ahead of production have required endurance – we have bided our time until convinced tangible rewards should be evident within our 12-month horizon’.

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Key stats
Market capitalisation£465m
No. of shares out105m
No. of shares floating99m
No. of common shareholdersnot stated
No. of employees4190
Trading volume (10 day avg.)m
Turnover£1,574m
Profit before tax£26m
Earnings per share25.05p
Cashflow per share36.05p
Cash per share201.66p

Peel Hunt: buy ‘good value’ Costain

Shares in engineering and construction company Costain (COSG) are ‘good value’ thanks to the benefits of increasing infrastructure spending and a drive up in earnings quality, says Peel Hunt.

Analyst Andrew Nussey retained his ‘buy’ recommendation and target price of 500p on the stock after first half results that reported profit before tax grew 30% to £18.3 million. The shares were flat at 440.3p yesterday.

‘The order book, preferred bidder work and management’s confidence in the bid pipeline provide a high degree of certainty over our near-term expectations,’ he said.

‘The shares are attractively positioned to benefit from increasing infrastructure investment as well as from management’s continuing focus on driving further earnings quality.’

Nussey added that the cash position of c.£70 million also ‘provides management with options to not only maintain the pace of organic growth but support further modest bolt-on acquisitions. The shares offer good value’.

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Key stats
Market capitalisation£974m
No. of shares out148m
No. of shares floating144m
No. of common shareholdersnot stated
No. of employees3261
Trading volume (10 day avg.)2m
Turnover£1,183m
Profit before tax£263m
Earnings per share179.95p
Cashflow per share197.54p
Cash per share151.38p

Barclays downgrades Provident Financial

Barclays has downgraded doorstep lender Provident Financial (PFG) after yesterday’s share price collapse but says the ‘self-inflicted’ problems can be resolved.

Analyst Toni Dang downgraded her recommendation from ‘overweight’ to ‘equal weight’ and lowered her price target price from £31.50 to 600p.

Provident Financial shares are down 61% since yesterday’s news of a Financial Conduct Authority investigation, scrapped its dividend and announced the departure of its boss, as problems in its home credit division worsened.

Dang said her ‘base case is that the operational disruption is self-inflicted and can be remedied, with the newly organised salesforce eventually able to collect existing debts and resume gathering new sales, although not at the same effectiveness as before’.

However, Dang was less optimistic over the regulatory investigation and the size of the potential financial impact, saying she ‘lacks conviction’ on the stock.

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