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The Expert View: Ferguson, Travis Perkins and Derwent

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The Expert View: Ferguson, Travis Perkins and Derwent

Our daily roundup of analyst commentary on shares, also including IG Group and St Modwen. 

Ferguson is right to be prudent, says Interactive Investor

Plumbing supplies firm Ferguson (FERG), previously known as Wolseley, has shaken off a difficult few months and even the company’s conservatism around dividends isn’t putting off Interactive Investor.

The company has made a ‘strong start’ to the year after a difficult period, said analyst Richard Hunter. However, the share price ‘reflects the ongoing fragility of sentiment’.

‘The lack of any comment around shareholder returns and a dividend yield of just 2.8%, despite the strength of the balance sheet, are potentially weighing on the shares, which have dropped 3% over the last year, as compared to a fall of 3.8% for the wider FTSE 100,’ he said.

‘Even so, the company’s conservatism could prove to be a prudent course in the face of any slowdown coming from the US, with the general market view of the shares as a ‘buy’ tending to support that view.’

The shares fell 5.2% to £49.30 yesterday.

Key stats
Dividend yield 4.2%
Market capitalisation £2,763m
No. of shares out 252m
No. of shares floating 229m
No. of common shareholders not stated
No. of employees 29,776
Trading volume (10 day avg.) 3.6m
Turnover 6,433m
Profit before tax 465m
Earnings per share 92p
Cashflow per share 142p
Cash per share 110p

Travis Perkins restructure is positive, says AJ Bell

A restructure at Travis Perkins (TPK) could be just what the builders’ merchants needs after ‘treading water’ but execution will be tricky, says AJ Bell.

The group has announced plans to sell its plumbing and heating division, estimated to be worth between £400 million and £500 million.

It aims to focus on trade customers and hold onto DIY chain Wickes. Analyst Russ Mould said the company was likely to ‘spruce up Wickes’ before considering it for sale at a later date.

‘It is positive to see Travis Perkins make clear strategic decisions as the business has been treading water for some time,’ said Mould.

‘Having a restructuring plan on paper is easy, executing the new strategy and achieving cost savings without disrupting the flow of the business is far from straightforward.’

Key stats
Dividend yield 2.2%
Market capitalisation £3,130m
No. of shares out 111m
No. of shares floating 99m
No. of common shareholders not stated
No. of employees 105
Trading volume (10 day avg.) 0.23m
Turnover 202m
Profit before tax 137m
Earnings per share 281
Cashflow per share 280
Cash per share 78

Jefferies sceptical over Derwent evolution

Property developer Derwent London (DLN) is taking an ‘evolutionary path’ that will make it a challenge to repeat past performance, says Jefferies.

Analyst Mike Prew retained his ‘underperform’ recommendation and target price of £24.50 on the stock after the company announced Paul Williams would take over as chief executive from John Burns in two years. The shares were trading at £28.22 yesterday.

‘The incoming chief executive sees Derwent London’s future as evolution, not revolution,’ said Prew.

‘We see a pathway for growth but there could be diminishing returns as developments become a less meaningful proportion of the stabilised portfolio, or Derwent moves up the risk spectrum in terms of development size, through this would likely mean a move out of its core geographic area,’ said Prew.

Key stats
Dividend yield 7.1%
Market capitalisation £2,035m
No. of shares out 368m
No. of shares floating 365m
No. of common shareholders not stated
No. of employees 1,597
Trading volume (10 day avg.) 1.37m
Turnover 595m
Profit before tax 298m
Earnings per share 61p
Cashflow per share 65p
Cash per share 95p

Shore Capital upgrades IG Group on price weakness

Shore Capital has upgraded IG Group (IGG) after weakness in the share price of the spread betting firm.

Analyst Paul McGinnis upgraded his recommendation from ‘hold’ to ‘buy’ with a ‘fair value’ price of 800p despite revenue for the half year dropping 6% compared to the same period last year. The shares tumbled 10.3% to 546p yesterday.

McGinnis said ‘trading conditions have been much more favourable in the last two months of this period than they were in the first quarter’ and he still regards ‘this as a resilient overall performance’.

‘We think the continued weakness in the share price during the wider market sell-off in October and November, ironically a period that provided a much stronger trading backdrop for IG, was counterintuitive,’ said McGinnis.

He added that the de-rating was ‘overdone’.

Key stats
Dividend yield 1.9%
Market capitalisation £863m
No. of shares out 221m
No. of shares floating 182m
No. of common shareholders not stated
No. of employees 481
Trading volume (10 day avg.) 0.16m
Turnover 318m
Profit before tax 74m
Earnings per share 26p
Cashflow per share 27p
Cash per share 0.23p

Numis backs St Modwen after ‘transformational’ year

Property developer St Modwen (SMP) has had a ‘transformational’ year that has positioned it for double-digit returns over the next few years, says Numis.

Analyst Chris Millington reiterated his ‘buy’ recommendation and target price of 488p on the shares, which were trading at 386.8p yesterday.

‘Full year 2018 marks a transformational 18-month period since the new strategy was unveiled; since which time the group has reduced debt materially, recycled more than 50% of the starting portfolio and positioned the company to grow through industrial/logistics development and regional housebuilding,’ he said.

Although there is the prospect of returns ‘climbing to double-digit levels over the next few years, St Modwen is trading at a 23% discount to November 2019 net asset value’.

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