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The Expert View: ITV, M&S and JD Wetherspoon

Our daily roundup of analyst commentary on shares, also including Redrow and Tyman.

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If you would like to receive new 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£6,002m
No. of shares out£4,025m
No. of shares floating£3,593m
No. of employees6,055
Trading volume (10 day avg.)17m
Turnover£3,132m
Profit before tax£829m
Earnings per share10.41p
Cashflow per share13.29p
Cash per share3.13p

ITV results leave ‘bitter taste’, says Hargreaves Lansdown

Third quarter numbers from broadcaster ITV (ITV) have left a ‘bitter taste’, says Hargreaves Lansdown.

ITV reported a 6% revenue rise in the first nine months of the year to £2.3 billion, slightly behind its half year growth.

‘Although overall performance is in line with management expectations, third quarter numbers still leave a bit of a bad taste in the mouth’, said analyst Nicholas Hyett.

‘Studio revenue growth is slowing, that’s partly explained by the fact it’s a lumpy business bit it’s still not ideal. The bigger issue is a slowdown in advertising in the broadcast business, which still accounts for 57% of revenue.’

He said although ITV’s content was ‘still getting bums on sofas’ with viewing figures up, ‘a gloomy outlook means the attention of the viewing public isn’t as attractive to advertisers as it once was’.

The shares fell 3.4% to 149.1p yesterday.

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Key stats
Market capitalisation£4,885m
No. of shares out£1,625m
No. of shares floating£1,613m
No. of employees80,787
Trading volume (10 day avg.)6.8m
Turnover£10,698m
Profit before tax£1,310m
Earnings per share1.58p
Cashflow per share41.05p
Cash per share13.63p

M&S needs to deliver on its promises, says Interactive Investor

Marks & Spencer (MKS) can continue to make share price gains if it provides more evidence it is delivering on turnaround promises, says Interactive Investor.

The high street stalwart saw revenues fall 3.1% over the half year after a number of store closures but, stripping out those costs, pre-tax profits grew 2%.

Analyst Lee Wild said food and clothing sales were still falling but ‘the masterplan is in its very early stages’

‘This is about getting the basics right. Do that, and everything else is at least built on solid foundations,’ he said.

‘There’s been enough optimism around M&S shares recently to force a break above an 18-month downtrend and, while the FTSE 100 has been flat the past fortnight, M&S is up over 7%. Further gains will hinge on Marks successfully tackling the decline in sales and providing further evidence it is delivering on its promise.’

The shares dipped 2p to 300p yesterday.

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Key stats
Market capitalisation£1,198m
No. of shares out£106m
No. of shares floating£67m
No. of employees24,062
Trading volume (10 day avg.)0.2m
Turnover£1,694m
Profit before tax£211m
Earnings per share63.17p
Cashflow per share137.88p
Cash per share59.80p

JD Wetherspoon: Peel Hunt reduces forecasts

The valuation of JD Wetherspoon (JDW) is not ‘strenuous’ but Peel Hunt has reduced its forecasts as rising labour costs hit again.

Analyst Douglas Jack retained his ‘hold’ recommendation and target price of £13.25 on the stock after the company reported lacklustre trading due to rising wage costs. The shares tumbled 14.2% to £11.25 yesterday.

Jack cut his profit before tax forecasts for 2018 by 4% as ‘we believe labour costs – national living wage rising at 4.9% and pension auto-enrolment contributions up 1% in April – remain the greatest risk to forecasts’.

‘The company is valued at 9.6x enterprise value/earnings, which is not strenuous given that freeholds now account for 59% of the estate,’ he said.

‘However, we believe there are better investment opportunities elsewhere.’

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Key stats
Market capitalisation£2,029m
No. of shares out£370m
No. of shares floating£237m
No. of employees2,308
Trading volume (10 day avg.)0.8m
Turnover£1,920m
Profit before tax£385m
Earnings per share85.08p
Cashflow per share85.91p
Cash per share24.34p

Shore cautions on rebounding Redrow

Shore Capital is cautious about prospects for Redrow (RDW), arguing the house builder will struggle to grow profits over the next three years.

Analyst Robin Hardy retained his ‘hold’ recommendation on the stock after ‘broadly in line’ first-quarter results that saw sales down ‘fractionally’ due to a stalling London market.

‘Overall, the board paints trading as being in line and, as expected, we see no reason to change forecasts at this stage,’ he said.

‘We remain cautious and expect moderately up to flat profits over the next three years.’

Hardy added that the shares had rebounded ‘strongly’ since the Budget and ‘while they have begun to appear cheap, they are now only 7% below fair value and we will remain at “hold” although we would still prefer the larger mid-caps focused on growth to the more turgid large caps’.

The shares fell 2.9% to 548.5p yesterday.

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Key stats
Market capitalisation£548m
No. of shares out£196m
No. of shares floating£192m
No. of employees3,964
Trading volume (10 day avg.)0.2m
Turnover£523m
Profit before tax£90m
Earnings per share13.62p
Cashflow per share33.71p
Cash per share26.59p

Numis upgrades ‘undervalued’ Tyman

Numis has upgraded Tyman (TYMN), which supplies building products to the door and window industry, as market uncertainty has had a ‘disproportionate’ impact on its valuation.

Analyst Christen Hjorth upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 370p on the shares, which rose 1.8% to 279.5p yesterday.

Full-year earnings are expected to be in line this year but Hjorth has ‘nudged’ his earnings per share forecast down 1% on higher finance costs.

‘We would not want this to be taken out of context, as we view the group’s operational performance as robust in what is an uncertain market both in the US and UK,’ he said.

‘Indeed, we believe that this uncertainty has had a disproportionate impact on valuation, with the group’s share price down 23% since its September high. As a result, Tyman now trades on a current year 2019 price/earnings ratio of circa nine times and dividend yield of 4.6%, which we believe undervalues the group.’

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