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The Expert View: Sainsbury’s, Rolls-Royce and Brewin Dolphin

Our daily roundup of analyst commentary on shares, also including Marshalls and Dixons Carphone.

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Key stats
Dividend yield 3%
Market capitalisation £6,189m
No. of shares out 2,202m
No. of shares floating 2,191m
No. of employees 52,800
Trading volume (10 day avg.) 7.6m
Turnover £28,456m
Profit before tax £1,429m
Earnings per share 12.72p
Cashflow per share 42.80p
Cash per share 88.10p

 

Sainbsury’s challenges CMA over Asda merger

Sainsbury’s (SBRY) is challenging the Competition and Markets Authority (CMA) probe into its merger with Asda, showing just how tricky this mega deal will be, says AJ Bell.

The two supermarkets want to take the competition watchdog to judicial review as they say they have not been given enough time to argue the case for the merger, which analyst Russ Mould likened to a ‘school child asking for an extension on their homework’.

The CMA is concerned that the deal will result in higher prices and a lower quality of service.

‘Getting such a big and complex transaction over the line was never going to be an easy task and [the] announcement from Sainsbury’s reveals just how tricky its £15 billion combination with Asda is proving,’ he said.

‘Investors may begin to question Sainsbury’s management more strongly on the merits of pressing ahead with the tie-up, given the demands it places on their time and resources.’

Mould said Sainsbury’s may be ‘better off staying smaller but getting smarter in the way it responds to the needs of shoppers’.

The shares fell 5.3% to 280.8p yesterday.

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Key stats
Dividend yield 0%
Market capitalisation £15,420m
No. of shares out 1,886m
No. of shares floating 1,875m
No. of employees 50,000
Trading volume (10 day avg.) 5.8m
Turnover £14,814m
Profit before tax £1,201m
Earnings per share 201.79p
Cashflow per share 244.73p
Cash per share 160.60p

 

Jefferies: reassuring update from Rolls-Royce

Aerospace group Rolls-Royce (RR) has confirmed it is on track to hit 2018 targets, which Jefferies says should reassure shareholders that there is progress being made.

Analyst Sandy Morris retained his ‘buy’ recommendation and target price of £11 after a ‘long-awaited’ trading update that saw the group ‘reconfirm its financial guidance for full-year 2018 profit and free cashflow’. The shares rose 4.7% to 817.8p yesterday.

‘Rolls-Royce states it has continued to make progress in reducing original equipment losses and points to progress towards a resolution of [aircraft engine] T1000 in-service issues,’ said Morris.

‘Without donning our rose-tinted spectacles, we believe the trading update should at least reassure.’

 

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Key stats
Dividend yield 5.2%
Market capitalisation £904m
No. of shares out 283m
No. of shares floating 261m
No. of employees 1,614
Trading volume (10 day avg.) 1.5m
Turnover £329m
Profit before tax £82m
Earnings per share 18.92p
Cashflow per share 23.85p
Cash per share 65.84p

 

Value gap at Brewin Dolphin, says Shore Capital

The market is undervaluing Brewin Dolphin (BRW) and that gap will have to be closed by recognition of growth or corporate activity, says Shore Capital.

Analyst Paul McGinnis retained his ‘buy’ recommendation and ‘fair value’ price of 420p on the shares, which rose 2% to 319p yesterday.  

He said the growth over the past two years has ‘not been adequately reflected in an upward re-rating’.

The stock continues to be McGinnis’ top pick in the wealth management sector as ‘our view is that either the market closes the current value gap by recognising the improved quality and growth of this business or corporate activity will do it instead’.

 

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Key stats
Dividend yield 3.1%
Market capitalisation £953m
No. of shares out 200m
No. of shares floating 190m
No. of employees 2,306
Trading volume (10 day avg.) 0.3m
Turnover £430m
Profit before tax £69m
Earnings per share 21.37p
Cashflow per share 28.45p
Cash per share 9.95p

 

Marshalls to outperform construction sector, says Numis

Numis is expecting Marshalls (MSLH) to outperform the wider construction sector, as the landscaping materials company can self-finance its targets.

Analyst Chris Millington retained his ‘hold’ recommendation and target price of 500p on the stock, after an update highlighted it ‘will exceed expectations for the full year’. Millington upgraded 2018 estimates by 2.5%.

The shares surged 14.1% to 475.4p yesterday.

‘The acquisition of [concrete brick manufacturer] Edenhall... has prompted a 3% upgrade to 2019 estimates,’ he said. ‘In our view, the acquisitions is in keeping with management’s strategic targets and can comfortably be self-financed while leaving net debt/earnings below one times.’

He added: ‘We retain our positive view and think that Marshalls will continue to outperform the wider construction sector.’

 

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Key stats
Dividend yield 7.5%
Market capitalisation £1,610m
No. of shares out 1,160m
No. of shares floating 962m
No. of employees 42,974
Trading volume (10 day avg.) 2.5m
Turnover £10,525m
Profit before tax £565m
Earnings per share 20.35p
Cashflow per share 37.93p
Cash per share 14.51p

 

Dixons Carphone is under pressure, says Interactive Investor

Dixon Carphone (DC) has ambitious plans to increase competitiveness but Interactive Investor believes competition is already increasingly and it has a number of plates to spin.

Analyst Richard Hunter said it has ‘ambitious and aspirational plan’ but they are coming at a cost, evidenced by profit warnings.

He said the company was likely to lose on price due to competition from Amazon but it is planning to grow in other channels and ‘consolidate its competitiveness, which starts from a position of strength given its scale’ but ‘will take some time to come through, even if successful’.

Hunter added, however, that Dixons ‘has many plates to spin at a time when competition in the sector is intensifying’ and the shares have drifted to a ‘cautious buy, with some downgrades becoming possible if the stock falls into the ‘jam tomorrow’ category’.

The shares fell 7.9% to 139.2p yesterday.

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