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The Expert View: Bovis Homes, Galliford Try and Superdry

Our daily roundup of analyst commentary on shares, also including SSE and Marks and Spencer.

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Click on the arrow to the right of the picture to view the slides. The arrows to the top right then allow you to move back and forth between them.

To see all the slides on the same page, click here.

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Key stats
Dividend yield 5.5%
Market capitalisation £1,399m
No. of shares out 135m
No. of shares floating 133m
No. of employees 1,251
Trading volume (10 day avg.) 0.3m
Turnover £1,061m
Profit before tax £175m
Earnings per share 101.50p
Cashflow per share 102.17p
Cash per share 121.43p

Tougher times ahead for Bovis, says Shore Capital

Bovis Homes’ (BVS) bullish outlook isn’t reflected in other house builders and Shore Capital still believes the shares present a value trap.

Analyst Robin Hardy retained his ‘sell’ recommendation and a ‘fair value’ price of 967p on the shares, which fell 2.8% to £10.16 yesterday.

He said the ‘bullish tone’ in the in-line trading update was not being expressed elsewhere in the market, although ‘Bovis is still on a journey to rebuild and repair and that this is likely to enable it to fare better than the rest of the sector’.

‘The sector remains very volatile and we would still not advocate investing in the mainstream house builders given much tougher markets ahead than either management teams or the consensus envisage,’ said Hardy.

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Key stats
Dividend yield 11.6%
Market capitalisation £668m
No. of shares out 111m
No. of shares floating 108m
No. of employees 5,485
Trading volume (10 day avg.) 0.7m
Turnover £2,932m
Profit before tax £183m
Earnings per share 120.62p
Cashflow per share 127.86p
Cash per share 821.77p

Cautious Numis downgrades Galliford Try

Numis has downgraded Galliford Try (GFRD) as despite the cheap share price there are issues that require caution.

Analyst Christen Hjorth downgraded his recommendation from ‘buy’ to ‘hold’ with a target price of 650p on the stock after the housebuilder announced the outcome of its strategic review into construction, which will involve a 20-25% shrinking of revenues by full year 2021. The shares tumbled 8.5% to 566.5p yesterday.

‘While Galliford is optically cheap, trading on a price/earnings ratio of 4.6 times, the group’s recent track record suggests that a degree of caution is appropriate, at least until construction issues are sustainably dealt with.’

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Key stats
Dividend yield 6.7%
Market capitalisation £416m
No. of shares out 82m
No. of shares floating 58m
No. of employees 3,286
Trading volume (10 day avg.) 0.4m
Turnover £872m
Profit before tax £142m
Earnings per share 63.33p
Cashflow per share 113.48p
Cash per share 92.86p

Liberum upgrades Superdry

Liberum has upgraded Superdry (SDRY) on the back of the ‘swift decisions’ being made to restore the fashion brand to health.

Analyst Wayne Brown upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 500p to 600p. The shares jumped 10.7% to 512.5p yesterday.

‘It will take time to restore Superdry to being the design-led business we all know it can be, but we are impressed by how swiftly decisions are being made,’ he said.

He added the new chairman’s focus was on ‘building a high calibre team to support the growth of a digital, design-led business with truly huge international opportunity’.

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Key stats
Dividend yield 9.2%
Market capitalisation £10,759m
No. of shares out 1,035m
No. of shares floating 1,030m
No. of employees 20,786
Trading volume (10 day avg.) 3.8m
Turnover £27,250m
Profit before tax £2,294m
Earnings per share 64.20p
Cashflow per share 176.42p
Cash per share 22.70p

Not all bad news at SSE, says Jefferies

Shares in SSE (SSE) have taken a battering from Labour’s plans to nationalise energy and concerns about the 2019/20 outlook, but Jefferies doesn’t think investors should worry too much yet.

Analyst Ahmed Farman retained his ‘buy’ recommendation and target price of £13.70 on the shares, which fell 3.2% to £10.12 yesterday.

‘SSE’s shares have been hammered recently on the back of concerns relating to Labour’s nationalisation plans, and the risk of a disappointing full year 2019/20 outlook,’ he said.

‘However, at first glance, the divisional outlook provided [on Wednesday] seems to be broadly in-line with our expectations. Full-year 2019/20 net debt guidance is a bit higher than our expectations.’

Although Farman added that there was ‘no further clarity on the future of SSE Energy Services’, it remained profitable and ‘we wouldn’t categorise [the lack of clarity] as a major new negative’.

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Key stats
Dividend yield 6.9%
Market capitalisation £4,222m
No. of shares out 1,625m
No. of shares floating 1,615m
No. of employees 80,787
Trading volume (10 day avg.) 5.1m
Turnover £10,698m
Profit before tax £1,310m
Earnings per share 1.58p
Cashflow per share 41.05p
Cash per share 13.63p

Marks and Spencer: patience wears thin

Marks and Spencer’s (MKS) ‘permanent turnaround’ means investor patience is beginning to wear thin, says AJ Bell.

The retailer took a £439 million hit from exceptional costs in its annual result, mainly from store closures, of which it is planning another 110. It also used the results to reveal its rights issue will be priced at 185p per share, a 32% discount to Tuesday’s closing price.

‘Some stocks feel like they are permanently in turnaround mode and Marks and Spencer certainly falls into that category,’ said analyst Russ Mould.

‘Little wonder that investors’ patience is starting to wear thin as these latest full-year results see performance constrained by its restructuring efforts.’

Mould said a tie-up with Ocado – which the rights issue will pay for – is not popular as it meant a dividend cut but ‘this enduring retail brand needed to do something to remain relevant to today’s shoppers’.

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