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The Expert View: Persimmon, Next and Renishaw

Our daily roundup of analyst commentary on shares, also including Ted Baker and IG Group.

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Key stats
Dividend yield 10.6%
Market capitalisation £6,863m
No. of shares out 318m
No. of shares floating 300m
No. of employees 4,809
Trading volume (10 day avg.) 1.4m
Turnover £3,738m
Profit before tax £1,100m
Earnings per share 280.77p
Cashflow per share 283.94p
Cash per share 330.05p

Persimmon plan fails to excite Shore Capital

Persimmon (PSN) has announced a first for the housebuilding sector that should boost the shares, which Shore Capital sees as an opportunity to top slice gains.

Analyst Robin Hardy retained his ‘buy’ recommendation on the company, which has announced 1.5% of the sale price of private homes will be held back by the buyer’s solicitor to ensure all remedial works to the new home are carried out. The move is a bid to tackle a major problem in the new build industry around the quality of homes.

Hardy said that while it may have some impact on margins, he already believes they have peaked in the sector.

‘The shares have slipped back below our fair value of £22.95 and while this news might provide a small fillip we would still be looking to top slice here and across the sector after the spectacular rebound through the first quarter of 2019,’ he said.

‘We keep our recommendation “buy” for now but the conviction we had back in December has now all but run out.’

The shares fell 2.4% to £21.60 yesterday.

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Key stats
Dividend yield 3.1%
Market capitalisation £7,135m
No. of shares out 138m
No. of shares floating 131m
No. of employees 28,318
Trading volume (10 day avg.) 0.4m
Turnover £4,056m
Profit before tax £886m
Earnings per share 415.59p
Cashflow per share 501.97p
Cash per share 36.93p

Next: mixed results and split opinions

Results from Next (NXT) reveal a profit dip and an increasing divide between online and high street that mimics the division of opinion over the clothing retailer’s future, says Interactive Investor.

Full-year profits dipped slightly, in line with previous guidance, while revenue was ahead of expectations and analyst Richard Hunter said ‘the differences between the fortunes of stores and online is becoming increasingly marked’.

‘The online business, which has long been the jewel in the crown, continues its growth apace,’ he said.

‘Less positively, the retail performance - where full-price sales declined by 7.3% - is symptomatic of the difficulties which many rivals in the sector are facing.’

Hunter said investors had ‘high expectations’ for Next and were ‘usually rewarded’.

‘Even so, there is a clear split of opinion on Next’s immediate future prospects, such that the market consensus of the shares continues to average out at a “hold”.’

The shares rose 2.6% to £53.16 yesterday.

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Key stats
Dividend yield 1.4%
Market capitalisation £2,731m
No. of shares out 73m
No. of shares floating 34m
No. of employees 4,862
Trading volume (10 day avg.) 0.1m
Turnover £612m
Profit before tax £191m
Earnings per share 181.82p
Cashflow per share 237.84p
Cash per share 142.67p

Renishaw warning raises wider fears

Engineering company Renishaw (RSW) may be a top-quality company but sometimes that isn’t enough, says AJ Bell.

The precision engineer has reported a profit warning on the back of softening Asian demand.

Analyst Russ Mould said Renishaw’s profit warning would ‘raise fears over the prospects of the wider engineering sector’ as it will be better positioned that most of its peers.

‘After a tricky 2018, shareholders will be hoping the company can eventually weather the current economic uncertainty and return to a growth plan,’ he said.

‘The market reaction [to the profit warning] suggests that a degree of patience remains, with the sell-off fairly measured when you consider the typical response to a growth company which reveals disappointing performance.’

The shares fell 11.2% to £37.30 yesterday.

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Key stats
Dividend yield 3.6%
Market capitalisation £702m
No. of shares out 45m
No. of shares floating 29m
No. of employees 3,582
Trading volume (10 day avg.) 0.1m
Turnover £592m
Profit before tax £99m
Earnings per share 118.27p
Cashflow per share 170.38p
Cash per share 37.58p

Ted Baker putting a brave face on, says Edison

Ted Baker (TED) is putting on a ‘brave face’ and believes its strong brand will push it through economic uncertainty and the departure of founder Ray Kelvin, says Edison.

Pre-tax profit for the year to January 2019 was down 14% in line with expectations and retail sales growth of 4.2% was supported by Europe and North America but held back by the rest of the world.

Analyst Paul Hickman said the fashion brand was ‘putting a brave face on its prospects’.

‘In common with competitors less protected by a distinctive brand, management notes consumer uncertainty, discounting in many global markets, and bad weather in North America,’ he said.

‘But Ted Baker remains confident in its strongly identified collections and longer-term brand and channel development.’

The shares fell 6.4% to £16.01 yesterday.

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Key stats
Dividend yield 8.5%
Market capitalisation £1,908m
No. of shares out 369m
No. of shares floating 365m
No. of employees 1,597
Trading volume (10 day avg.) 1.4m
Turnover £595m
Profit before tax £299m
Earnings per share 61.20p
Cashflow per share 65.96p
Cash per share 95.58p

Long-term value at IG Group, says Peel Hunt

IG Group (IGG) has reported a slow quarter and Peel Hunt believes that while there is value in the spread betting firm it is unlikely to be realised in the short-term.

Analyst Anthony Da Costa retained his ‘buy’ recommendation and target price of 775p on the shares, which fell 6% to 515p yesterday.

An update from the group confirmed lower levels of trading activity that was ‘more pronounced than the impact of new regulation’.

‘The stock is trading on about 13 times current year estimates, while yielding 8%,’ said Da Costa.

‘There is clear value in the inherent strength of the IG platform and provision of execution capability, but markets in the short term remain challenging.’

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