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The Expert View: WPP, Next and Smiths News

Our daily roundup of the best analyst commentary on shares, also including Innovation Group and SThree.

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Key stats
Market capitalisation£16,398m
No. of shares out1,342m
No. of shares floating1,260m
No. of common shareholdersnot stated
No. of employees116911
Trading volume (10 day avg.)6m
Turnover£10,373m
Profit before tax£823m
Earnings per share62.75p
Cashflow per share95.47p
Cash per share153.73p

*Correct as at 17 Mar 2014

WPP a strong media play but questions have been raised

Liberum analyst Ian Whittaker is taking a ‘wait and see’ approach to advertising and branding agency WPP (WPP.L) and reiterated his ‘hold’ recommendation.

Whittaker also lowered the target price for the stock to £12.80 form £16.00 over downgrading of improvement guidance form 50bps to 30bps per annum.

‘We recommend investors take a ‘wait and see’ approach to WPP,’ he said. ‘It is still the best positioned of the agencies, in our view, and the agency model still has a number of attractions: but the recent downgrading of annual margin improvement guidance has raised questions that were not there before.’

He also downgraded 2014 and 2015 earnings per share estimates by 8.8% and 7% ‘to reflect a combination of lower 2014 organic revenue growth, lower margin growth and FX effects’.

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Key stats
Market capitalisation£10,407m
No. of shares out155m
No. of shares floating146m
No. of common shareholdersnot stated
No. of employees28301
Trading volume (10 day avg.)0m
Turnover£3,563m
Profit before tax£509m
Earnings per share311.70p
Cashflow per share383.46p
Cash per share97.93p

*Correct as at 17 Mar 2014

Buy cheap Next as it builds on ‘strong foundations’

A new designer brand from high street stalwart Next (NXT.L) plus plans for online growth have led Jefferies analysts to reiterate their ‘buy’ recommendation.

Analyst Caroline Gulliver also increased her target price from £70.00 to £75.00 as she expects Thursday’s full year results to ‘once again illustrate the quality of the business model’ and the upside of new initiatives such as ‘Label’.

Gulliver forecast profit before tax of £700 million, at the top end of the consensus, as the brand continues ‘building on strong foundations’.

From a more macro perspective, Gulliver said UK consumer confidence had continued to improve and personal disposable income is expected to grow nearly 2% in 2014 and 2015.

‘Mortgage approvals grew 42% in January which should be a precursor to Next homewares performing well,’ she added.

‘Next’s stock price has risen 21% year to date but in a rising market Next is one of the lowest valued European general retailers.’

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Key stats
Market capitalisation£367m
No. of shares out1,099m
No. of shares floating1,032m
No. of common shareholdersnot stated
No. of employees2653
Trading volume (10 day avg.)1m
Turnover£204m
Profit before tax£8m
Earnings per share0.76p
Cashflow per share2.27p
Cash per share5.12p

*Correct as at 17 Mar 2014

Innovation Group acquisitions to kick-start next phase of growth

Business outsourcing company Innovation Group (TIG.L) is set to continue its success story as two acquisitions deliver more growth.

Investec analyst Julian Yates retained a ‘buy’ recommendation but increased the target price for the share from 42p to 45p.

‘Innovation Group has made for a successful story over recent years – recovery followed by operational consolidation, organic growth and then earnings momentum,’ he said. ‘Now marks the right time for its two recent acquisitions, which move the group up another gear in terms of addressable market, scale and critical mass.’

Yates said the acquisitions send ‘a strong signal about the group’s growth ambitions’ and he foresees ‘plenty of organic growth, operational leverage and M&A potential’.

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Key stats
Market capitalisation£514m
No. of shares out124m
No. of shares floating99m
No. of common shareholdersnot stated
No. of employees2327
Trading volume (10 day avg.)0m
Turnover£634m
Profit before tax£7m
Earnings per share5.47p
Cashflow per share9.76p
Cash per share11.08p

*Correct as at 17 Mar 2014

Recruiter SThree at the start of a staffing recovery

Specialist recruitment company SThree (STHR.L) has had an encouraging start to the year as it steps into a staffing recovery.

According to Numis analyst Steve Woolf, who retained a ‘buy’ recommendation and a target price of 534p on the shares, while Q1 results are the ‘least significant’ of the year, he is positive about the outlook for the company.

‘Q1 trading indicates an encouraging start to the year, with improving trends in both temp and perm, and providing management with the confidence to indicate a steady investment in headcount over the remainder of the year,’ said Woolf. ‘We believe that we are in the early phase of staffing recovery, and there is significant earnings upside as we move through the cycle.’

He added that SThree could achieve ‘earnings per share of c.48-54p at the peak of the next cycle’.

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Key stats
Market capitalisation£296m
No. of shares out189m
No. of shares floating185m
No. of common shareholdersnot stated
No. of employees4794
Trading volume (10 day avg.)0m
Turnover£1,811m
Profit before tax£31m
Earnings per share16.04p
Cashflow per share21.35p
Cash per share5.48p

*Correct as at 17 Mar 2014

Smith News rebrand reflects bigger ambitions

Peel Hunt analyst Kate Renn has retained a ‘hold’ recommendation for newsagent Smith News (NWS.L) as it changes its name to reflect the importance of moving away from life as a newspaper distributor.

Renn increased the target price from 470p to 480p as the name change reflects an aim to diversify the business and a plan to deliver 50% of operating profit from outside news. She added that to deliver its 50% target it needs further acquisition.

The name will change from Smith News to Connect Group from 22 April to ‘reflect its strategy of becoming a more broadly diversified specialist distribution business’,’ said Renn.

Companies within the group will not change their name or identity although they will be split into three divisions, instead of the current four, as the smallest Media Direct will be incorporated into the News and Media Business.

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Profile: The opportunity set that attracted Brett Williams to wealth management

Profile: The opportunity set that attracted Brett Williams to wealth management

Brett Williams is best known for helping to build some of the biggest platforms in the IFA market.He made the move over to wealth management to head SEI’s UK business earlier this year in the belief that this is where the best opportunities now lie.

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