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The Expert View: 888, Fevertree and AstraZeneca

Our daily roundup of analyst commentary on shares, also including Arix Bioscience and DS Smith.

by Michelle McGagh on May 16, 2017 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£1,003m
No. of shares out360m
No. of shares floating176m
No. of common shareholdersnot stated
No. of employees1353
Trading volume (10 day avg.)1m
Turnover404m USD
Profit before tax40m USD
Earnings per share0.11 USD
Cashflow per share0.15 USD
Cash per share0.37 USD

888 won’t lose out from Gambling Commission Review, says Peel Hunt

The Gambling Commission is conducting a review of online gambling company 888 Holdings (888), which Peel Hunt expects to result in a fine and business changes.

Analyst Ivor Jones retained his ‘buy’ recommendation and target price of 350p on the stock, which was trading down 7.4%, or 22p, at 275p at the time of writing, after the announcement of the review.

The review will centre on concerns that the company had not acted consistently with the Commission’s guidelines.

‘The Gambling Commission is “conducting a review”. We believe it is probably that a fine and some change in business practices will result,’ he said.

‘It appears this public process is now the Commission’s preferred way of regulating the gambling industry and fines and bad publicity are part of the cost of doing business.’

Jones said the fine was ‘likely to be tolerable’ and ‘the rest of the industry will have to follow whatever changed business practices are required, neutralising any competitive impact’.

Key stats
Market capitalisation£197m
No. of shares out96m
No. of shares floating69m
No. of common shareholdersnot stated
No. of employees12
Trading volume (10 day avg.)m
Profit before tax£-100,000m
Earnings per share-9,999,999.00p
Cashflow per share-9,999,999.00p
Cash per share32.10p

Jefferies initiates coverage of Arix Bioscience

Jefferies has initiated coverage of Arix Bioscience (ARIX), which is backed by star fund manager Neil Woodford.

Analyst Ken Rumph initiated coverage with a ‘buy’ recommendation and target price of 245p on the stock. The shares were trading down 4.5%, or 9.2p, at 195p at the time of writing.

‘Arix leverages the successful track records and networks of its leadership, transatlantic sourcing from academia, accelerators and via industry partners to build businesses that meet the growing need of late-stage focused big pharma for quality clinical assets,’ he said.

‘The existing portfolio shows reach and ambition. We initiate at “buy” with a 245p price target, reflecting the expectation of c.£55 million of full-year 2017 investment, beginning in coming months.’

Woodford holds a 32.8% stake in the company, worth £60.7 million, through his company Woodford Investment Management. The stock makes up 0.76% of his Woodford Patient Capital investment trust and 0.26% of his Woodford Equity Income fund.

Key stats
Market capitalisation£65,630m
No. of shares out1,266m
No. of shares floating1,261m
No. of common shareholdersnot stated
No. of employees59700
Trading volume (10 day avg.)3m
Turnover17,845m USD
Profit before tax2,715m USD
Earnings per share2.14 USD
Cashflow per share3.50 USD
Cash per share3.62 USD

AstraZeneca lung drug trials mark an inflection point, says Deutsche Bank

Deutsche Bank has predicted an ‘inflection point’ for AstraZeneca (AZN) after encouraging initial results from its Pacific lung cancer trial.

Analyst Richard Parkes reiterated his ‘buy’ recommendation and increased the target price from £53.50 to £57.00 following the positive trial, which means AstraZeneca can reduce its reliance on a second trial called Mystic.

‘We believe the Pacific study’s early readout suggests a meaningful benefit and the lack of alternatives for patients with locally advanced lung cancer should ensure approval,’ he said.

‘As a result, we believe this represents a major inflection point for AstraZeneca’s immune-oncology platform and reinvigorates our conviction in the company’s potential return to strong growth.’

The shares were trading up 1.1%, or 60p, at £52.36 at the time of writing.

Key stats
Market capitalisation£4,130m
No. of shares out951m
No. of shares floating944m
No. of common shareholdersnot stated
No. of employees26065
Trading volume (10 day avg.)2m
Profit before tax£167m
Earnings per share17.51p
Cashflow per share36.16p
Cash per share14.18p

The Share Centre: DS Smith offers increasing dividend

Packaging company DS Smith (SMDS) is The Share Centre’s share of the week thanks to strong earnings now feeding through into dividend payments.

The company, which provides corrugated and plastic packaging and recycling services, has benefited from the growth in online retailing where cardboard packaging is widely used.

Analyst Ian Forrest said the latest trading update also pointed to the fact that ‘recently acquired businesses have made solid progress and the group therefore expects to deliver on all five of its medium term financial targets’.

He said the company had a good track record of ‘boosting growth with well-judged acquisitions’.

‘Strong earnings are now feeding through into dividend payments, which have increased substantially in recent years, and the prospective yield now stands at 3.6%,’ said Forrest.

‘Combine this with good sales growth, a solid record with acquisitions and a cost-cutting plan, we continue to recommend DS Smith as a “buy”. The shares are suitable for investors seeking a mixture of income and growth but also willing to accept a higher level of risk.’

At the time of writing the shares were trading down 0.6%, or 2.4p, at 434p.

Key stats
Market capitalisation£1,927m
No. of shares out115m
No. of shares floating86m
No. of common shareholdersnot stated
No. of employees40
Trading volume (10 day avg.)1m
Profit before tax£28m
Earnings per share23.70p
Cashflow per share24.53p
Cash per share28.60p

Fevertree keeps momentum but upgrades needed, says Shore Capital

AIM-listed premium soft drinks company Fevertree Drinks (FEVR) is on course to beat expectations this year but Shore Capital says there need to be significant upgrades to justify the current price.

Analyst Phil Carroll retained his ‘hold’ recommendation on the stock, which was trading down 1%, or 18p, at £16.86 at the time of writing.

Fevertree issued a trading update which shows it is maintaining momentum. ‘Despite an exceptional 2016, momentum in the first four months of 2017 is strong enough to justify management guiding to an expectation that results for the current year will be comfortably ahead of market expectations,’ said Carroll.

‘Following discussions with the company we expect to increase our revenue and profit before tax expectations by c.5%, noting our forecasts are starting ahead of consensus.’

An increase in forecasts would equate to profit before tax rising from £38.7 million to £40.6 million this year, which Carroll said would ‘imply the shares are trading on a full year 2017 price/earnings ratio of 59.6 times’.

‘Our analysis shows that the valuation requires significant upgrades to justify the current share price. Therefore, we retain our “hold” recommendation,’ he said.

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Look up the shares

  • Fevertree Drinks PLC (FEVR.L)
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  • Arix Bioscience PLC (ARIX.L)
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  • 888 Holdings PLC (888.L)
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  • AstraZeneca PLC (AZN.L)
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  • DS Smith PLC (SMDS.L)
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