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View the rest of this gallery online at http://citywire.co.uk/money/gallery/a998560
Our daily roundup of analyst commentary on shares, also including Grafton and LSL Property.
Paddy Power Betfair valuation looks full, says Liberum
Bookmaker Paddy Power Betfair (PPB) may have its attractions but Liberum is concerned about the ‘rich’ valuation.
Analyst Jason Holden retained his ‘hold’ recommendation and target price of £88.08 on the stock following full-year 2016 results. The shares were trading down 4.9%, or 435p, at £83.55 at the time of writing.
‘No major surprises in full-year 2016 results, which were well-flagged by January’s trading update,’ he said. ‘However, sportsbook staking has been healthy so far in full-year 2017 and – after a mediocre fourth quarter – the group is trading in line with expectations.’
He added that ‘a business case founded on regulated earnings, complementary brands and market firepower has its attractions’ but on a 20x price-earnings ratio the ‘valuation is rich and operational challenges in gaming are still evident’.
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| Key stats | |
|---|---|
| Market capitalisation | £223m |
| No. of shares out | 102m |
| No. of shares floating | 91m |
| No. of common shareholders | not stated |
| No. of employees | 4677 |
| Trading volume (10 day avg.) | m |
| Turnover | £301m |
| Profit before tax | £30m |
| Earnings per share | 29.47p |
| Cashflow per share | 36.40p |
| Cash per share | 5.47p |
LSL Property ready to take on ‘twisty’ road ahead, says Jefferies
LSL Property Services (LS) is a ‘steady ship in turbulent markets’ and is ready for the more difficult property environment, says Jefferies.
Analyst Anthony Codling retained his ‘hold’ recommendation and 200p target price on the stock, which was trading flat at 215p at the time of writing.
‘We were pleasantly surprised that both the full-year 2016 results were in line with expectations and that there was no change to guidance for full-year 2017,’ he said. ‘We also noticed a new word in LSL’s lexicon: “digital”. LSL sat back while the other majors laid their digital bets and is now on the verge of laying its own.’
Codling said the company was a ‘steady ship in a turbulent market’ and that although margins had reduced and branch profitability had fallen ‘we knew the market was bad’.
‘The dividend was 5% ahead of our expectation and the strategy reiterated which suggests to us all is well under the bonnet and it is ready for the twisty road ahead,’ he said.
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| Key stats | |
|---|---|
| Market capitalisation | £1,627m |
| No. of shares out | 244m |
| No. of shares floating | 216m |
| No. of common shareholders | not stated |
| No. of employees | 10434 |
| Trading volume (10 day avg.) | 1m |
| Turnover | £2,212m |
| Profit before tax | £97m |
| Earnings per share | 41.30p |
| Cashflow per share | 55.09p |
| Cash per share | 86.98p |
‘Unique’ Grafton is Numis’ preferred play in merchanting
Although operating in a competitive space, builders’ merchants Grafton Group (GFTU) has ‘unique growth drivers’, according to Numis.
Analyst Howard Seymour retained his ‘buy’ recommendation and target price of 730p on the stock. The shares had risen 7.6%, or 46p, to 653p at the time of writing.
‘While we would not underestimate that the UK merchanting space will remain competitive and challenging over the current year, Grafton can point to unique growth drivers – Selco [warehouse chain], Ireland and Holland – plus management actions to date in traditional merchanting which will enable the group to demonstrate sector leading performance,’ he said.
Seymour added that the company’s ability to bolster its position through bolt-on purchases ‘adds another dynamic’.
‘We upgrade estimates for the current year and retain a positive recommendation on Grafton as our favoured stock in the general merchanting space.’
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| Key stats | |
|---|---|
| Market capitalisation | £4,615m |
| No. of shares out | 1,368m |
| No. of shares floating | 1,359m |
| No. of common shareholders | not stated |
| No. of employees | 10310 |
| Trading volume (10 day avg.) | 7m |
| Turnover | £3,270m |
| Profit before tax | £399m |
| Earnings per share | 27.55p |
| Cashflow per share | 34.32p |
| Cash per share | 70.41p |
Shore Capital: disappointment at Direct Line after payout rule change
A rule change that forces insurers to pay larger lump sum payments for personal injury claims has reduced profits and dividends payments at Direct Line (DLG).
Shore Capital analyst Eamonn Flanagan reiterated his ‘sell’ recommendation after the Ministry of Justice has cut the discount rate – known as the Ogden rate - that applies to compensation payouts to -0.75% from 2.5% to reflect lower gilt yields. Direct Line had been applying a 1.5% discount rate.
Flanagan said the change cost the insurer £217 million over 2016 and ‘the hit also impacted the dividend payment with the group simply increasing the final dividend by c.5% and not paying any additional special over and above that paid at the interims’.
‘Before Ogden, the market had assumed a further 7.2p,’ he added.
The shares were trading down 1.3%, or 4.7p, at 343p at the time of writing.
‘The Ogden hit is clearly of huge disappointment to Direct Line, with the group delivering an excellent underlying performance. In addition, we applaud the moves the group has and continues to make on the innovation front. However, the Ogden issue highlights the vulnerability of the sector to such regulatory hits.’
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| Key stats | |
|---|---|
| Market capitalisation | £8,494m |
| No. of shares out | 499m |
| No. of shares floating | 482m |
| No. of common shareholders | not stated |
| No. of employees | 13399 |
| Trading volume (10 day avg.) | 2m |
| Turnover | £2,546m |
| Profit before tax | £408m |
| Earnings per share | 80.97p |
| Cashflow per share | 174.69p |
| Cash per share | 2.58p |
Ashtead set for more tailwinds after Trump boost, says Hargreaves
Equipment rental company Ashtead (AHT) has been one of the biggest winners from Donald Trump’s infrastructure pledges and there are more economic tailwinds to come, says Hargreaves Lansdown.
The US –focused company saw third quarter rental revenue rise 14% and operating profits up 9% in the same period. At the time of writing the shares were down 2.8%, or 49p, at £16.94.
‘With 87% of revenues generated in the US, few other stocks in the UK market have benefited as much from the Trump trade as Ashtead,’ said Nicholas Hyett, analyst at Hargreaves Lansdown.
‘A strong dollar, fuelled by the prospect of higher US interest rates, and Trump’s planned infrastructure spending splurge have boosted both the value of current revenues and the potential for future earnings.’
Hyett said the group was targeting double-digit growth out to 2021 and making acquisitions to enable it. ‘That’s seeing debt rise – something which has historically proven risky, leaving the group dangerously over-leveraged when rental earnings evaporate. However, the rapid growth in revenues mean that for now at least these debts are falling in relative terms.’
He added that ‘wider economic tailwinds are also blowing in the group’s favour’ such as a US shale recovery but there are ‘few more direct plays on a Trump boom in the UK market, with the shares up 35% since election’.
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Paddy Power Betfair valuation looks full, says Liberum
Bookmaker Paddy Power Betfair (PPB) may have its attractions but Liberum is concerned about the ‘rich’ valuation.
Analyst Jason Holden retained his ‘hold’ recommendation and target price of £88.08 on the stock following full-year 2016 results. The shares were trading down 4.9%, or 435p, at £83.55 at the time of writing.
‘No major surprises in full-year 2016 results, which were well-flagged by January’s trading update,’ he said. ‘However, sportsbook staking has been healthy so far in full-year 2017 and – after a mediocre fourth quarter – the group is trading in line with expectations.’
He added that ‘a business case founded on regulated earnings, complementary brands and market firepower has its attractions’ but on a 20x price-earnings ratio the ‘valuation is rich and operational challenges in gaming are still evident’.
| Key stats | |
|---|---|
| Market capitalisation | £223m |
| No. of shares out | 102m |
| No. of shares floating | 91m |
| No. of common shareholders | not stated |
| No. of employees | 4677 |
| Trading volume (10 day avg.) | m |
| Turnover | £301m |
| Profit before tax | £30m |
| Earnings per share | 29.47p |
| Cashflow per share | 36.40p |
| Cash per share | 5.47p |
LSL Property ready to take on ‘twisty’ road ahead, says Jefferies
LSL Property Services (LS) is a ‘steady ship in turbulent markets’ and is ready for the more difficult property environment, says Jefferies.
Analyst Anthony Codling retained his ‘hold’ recommendation and 200p target price on the stock, which was trading flat at 215p at the time of writing.
‘We were pleasantly surprised that both the full-year 2016 results were in line with expectations and that there was no change to guidance for full-year 2017,’ he said. ‘We also noticed a new word in LSL’s lexicon: “digital”. LSL sat back while the other majors laid their digital bets and is now on the verge of laying its own.’
Codling said the company was a ‘steady ship in a turbulent market’ and that although margins had reduced and branch profitability had fallen ‘we knew the market was bad’.
‘The dividend was 5% ahead of our expectation and the strategy reiterated which suggests to us all is well under the bonnet and it is ready for the twisty road ahead,’ he said.
| Key stats | |
|---|---|
| Market capitalisation | £1,627m |
| No. of shares out | 244m |
| No. of shares floating | 216m |
| No. of common shareholders | not stated |
| No. of employees | 10434 |
| Trading volume (10 day avg.) | 1m |
| Turnover | £2,212m |
| Profit before tax | £97m |
| Earnings per share | 41.30p |
| Cashflow per share | 55.09p |
| Cash per share | 86.98p |
‘Unique’ Grafton is Numis’ preferred play in merchanting
Although operating in a competitive space, builders’ merchants Grafton Group (GFTU) has ‘unique growth drivers’, according to Numis.
Analyst Howard Seymour retained his ‘buy’ recommendation and target price of 730p on the stock. The shares had risen 7.6%, or 46p, to 653p at the time of writing.
‘While we would not underestimate that the UK merchanting space will remain competitive and challenging over the current year, Grafton can point to unique growth drivers – Selco [warehouse chain], Ireland and Holland – plus management actions to date in traditional merchanting which will enable the group to demonstrate sector leading performance,’ he said.
Seymour added that the company’s ability to bolster its position through bolt-on purchases ‘adds another dynamic’.
‘We upgrade estimates for the current year and retain a positive recommendation on Grafton as our favoured stock in the general merchanting space.’
| Key stats | |
|---|---|
| Market capitalisation | £4,615m |
| No. of shares out | 1,368m |
| No. of shares floating | 1,359m |
| No. of common shareholders | not stated |
| No. of employees | 10310 |
| Trading volume (10 day avg.) | 7m |
| Turnover | £3,270m |
| Profit before tax | £399m |
| Earnings per share | 27.55p |
| Cashflow per share | 34.32p |
| Cash per share | 70.41p |
Shore Capital: disappointment at Direct Line after payout rule change
A rule change that forces insurers to pay larger lump sum payments for personal injury claims has reduced profits and dividends payments at Direct Line (DLG).
Shore Capital analyst Eamonn Flanagan reiterated his ‘sell’ recommendation after the Ministry of Justice has cut the discount rate – known as the Ogden rate - that applies to compensation payouts to -0.75% from 2.5% to reflect lower gilt yields. Direct Line had been applying a 1.5% discount rate.
Flanagan said the change cost the insurer £217 million over 2016 and ‘the hit also impacted the dividend payment with the group simply increasing the final dividend by c.5% and not paying any additional special over and above that paid at the interims’.
‘Before Ogden, the market had assumed a further 7.2p,’ he added.
The shares were trading down 1.3%, or 4.7p, at 343p at the time of writing.
‘The Ogden hit is clearly of huge disappointment to Direct Line, with the group delivering an excellent underlying performance. In addition, we applaud the moves the group has and continues to make on the innovation front. However, the Ogden issue highlights the vulnerability of the sector to such regulatory hits.’
| Key stats | |
|---|---|
| Market capitalisation | £8,494m |
| No. of shares out | 499m |
| No. of shares floating | 482m |
| No. of common shareholders | not stated |
| No. of employees | 13399 |
| Trading volume (10 day avg.) | 2m |
| Turnover | £2,546m |
| Profit before tax | £408m |
| Earnings per share | 80.97p |
| Cashflow per share | 174.69p |
| Cash per share | 2.58p |
Ashtead set for more tailwinds after Trump boost, says Hargreaves
Equipment rental company Ashtead (AHT) has been one of the biggest winners from Donald Trump’s infrastructure pledges and there are more economic tailwinds to come, says Hargreaves Lansdown.
The US –focused company saw third quarter rental revenue rise 14% and operating profits up 9% in the same period. At the time of writing the shares were down 2.8%, or 49p, at £16.94.
‘With 87% of revenues generated in the US, few other stocks in the UK market have benefited as much from the Trump trade as Ashtead,’ said Nicholas Hyett, analyst at Hargreaves Lansdown.
‘A strong dollar, fuelled by the prospect of higher US interest rates, and Trump’s planned infrastructure spending splurge have boosted both the value of current revenues and the potential for future earnings.’
Hyett said the group was targeting double-digit growth out to 2021 and making acquisitions to enable it. ‘That’s seeing debt rise – something which has historically proven risky, leaving the group dangerously over-leveraged when rental earnings evaporate. However, the rapid growth in revenues mean that for now at least these debts are falling in relative terms.’
He added that ‘wider economic tailwinds are also blowing in the group’s favour’ such as a US shale recovery but there are ‘few more direct plays on a Trump boom in the UK market, with the shares up 35% since election’.