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The Expert View: BP, Morrisons and Persimmon

Our daily roundup of analyst commentary on shares, also including Hastings and Topps Tiles.

by Michelle McGagh on Jan 10, 2018 at 05:00

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Key stats
Market capitalisation£104,682m
No. of shares out19,858m
No. of shares floating19,704m
No. of common shareholdersnot stated
No. of employees74500
Trading volume (10 day avg.)21m
Turnover134,903m USD
Profit before tax13,400m USD
Earnings per share0.00 USD
Cashflow per share0.57 USD
Cash per share0.89 USD

Barclays backs growth for BP divi

Barclays believes BP (BP) can deliver improved cashflow and that the outlook for the oil giant is much clearer than for its peers.

Analyst Lydia Rainforth retained her ‘overweight’ recommendation and target price of 675p on the shares, which were flat at 527.6p yesterday.

‘We expect it to become increasingly evident over the coming 12 months that BP can deliver a material and sustained improvement in free cash flow,’ she said.

‘Project start-ups already delivered at the end of 2017 should drive this improvement, with 2018 start-ups adding to the momentum towards year end.’

She said there would be ‘bumps in the road’ for BP over the next five years but ‘the direction of travel is far clearer for BP than it is for others’.

‘This improvement in operational and financial performance we anticipate remains at odds with the valuation of the shares, with the dividend yield stubbornly remaining at 6%. As investor confidence in the ability of BP to sustain and grow that dividend improves, we expect to see the shares re-rate,’ said Rainforth.

Key stats
Market capitalisation£5,456m
No. of shares out2,356m
No. of shares floating2,345m
No. of common shareholdersnot stated
No. of employees42054
Trading volume (10 day avg.)10m
Profit before tax£829m
Earnings per share12.95p
Cashflow per share29.89p
Cash per share13.96p

Hargreaves gives Morrisons a round of applause

Supermarket chain Morrisons (MRW) has defied the weak market backdrop this Christmas and maintained sales momentum, but not enough to lift its profit forecasts.

Morrisons posted a 3.7% like-for-like sales rise over the Christmas period but said the price of a basket of Christmas items was the same as 2016, despite rising inflation. Sales volumes were up, like-for-like transactions were up 2.3%, and online sales grew by over 10%.

The supermarket also announced a deal to reopen the Safeway brand in McColl’s convenience stores and a tie-up with Amazon as part of the tech giant’s move into online groceries.

The shares rose 2.9% to 233.4p yesterday on the news.

‘Morrisons maintained its sales momentum towards the end of last year, and witnessed some particularly brisk trading around the Christmas period, though this isn’t enough to move the dial on the company’s profit forecasts,’ said analyst Laith Khalaf.

‘Food sales are not as vulnerable to a consumer slowdown as clothing, but given the weak trading backdrop, Morrison’s Christmas trading figures are worthy of a cursory round of applause.’

Key stats
Market capitalisation£8,348m
No. of shares out309m
No. of shares floating297m
No. of common shareholdersnot stated
No. of employees4526
Trading volume (10 day avg.)1m
Profit before tax£782m
Earnings per share196.95p
Cashflow per share199.47p
Cash per share295.95p

Persimmon profit lift bodes well for housebuilders, says Liberum

Housebuilder Persimmon (PSN) is expecting 2017 profits to come in ahead of expectation, which Liberum believes bodes well for the market this year.

Analyst Charlie Campbell retained his ‘hold’ recommendation and target price of £27.40 on the stock after it guided to 2017 profits being ahead of consensus expectations and ‘better than expected profit progression offsetting revenues that were slightly behind expectations, albeit up 9%’.

‘The main point from the update was that reservation rates were ahead of last year in the second half, suggesting continued resilience of demand for new homes,’ said Campbell.

‘This bodes well for trading updates expected from the rest of the sector. We continue to see better value in smaller growing housebuilders, with top picks: Bellway, Galliford Try, MJ Gleeson, and Redrow.’

Persimmon shares fell 1.2% to £27.13 yesterday.

Key stats
Market capitalisation£2,048m
No. of shares out657m
No. of shares floating270m
No. of common shareholdersnot stated
No. of employees2367
Trading volume (10 day avg.)1m
Profit before tax£131m
Earnings per share11.90p
Cashflow per share16.09p
Cash per share25.56p

Hastings still a ‘sell’ for Shore after board reshuffle

Shore Capital has welcomed insurer Hastings’ (HSTG) management reshuffle but still has concerns around the outlook for 2018.

Analyst Eamonn Flanagan reiterated his ‘sell’ recommendation on the stock after it was announced that chairman Mike Fairey was retiring and chief executive Gary Hoffman would step down.

Hoffman will become non-executive chairman, with current managing director Toby van der Meer stepping into the chief executive role.

‘The appointment of van der Meer makes enormous sense,’ said Flanagan. Toby will “get” the Hastings culture and, we believe, will deliver continuity for investors. We expect shareholders to warm to Toby as his profile within the market widens and his contribution to the development of the group’s retail proposition is recognised.’

However, Flanagan said the group was facing increased reinsurance costs and ‘we expect motor rates across the market to continue to fall in 2018’.

‘In addition the reliance on ancillary and instalment income leave us concerned over the group’s 2017 price/earnings ratio of c.14.5x dropping to c.13x for 2018.’ The shares edged 2p higher to 313p yesterday.

Key stats
Market capitalisation£169m
No. of shares out193m
No. of shares floating161m
No. of common shareholdersnot stated
No. of employees1977
Trading volume (10 day avg.)m
Profit before tax£25m
Earnings per share6.86p
Cashflow per share10.20p
Cash per share3.82p

Momentum has shifted at Topps Tiles, says Peel Hunt

The mood at Topps Tiles (TPT) feels positive after first quarter trading and Peel Hunt believes the forecast momentum has ‘shifted’.

Analyst John Stevenson reiterated his ‘buy’ recommendation and target price of 100p on the stock after a first quarter update showed like-for-like sales increased 3.4%. The shares rose 8.8% to 87p yesterday.

‘We are in no rush to start upgrading forecasts on the basis of one quarter’s trade,’ he said. ‘However, the mood music feels much more positive, benefiting from a more consistent and less volatile reading period. Given the weaker comparatives ahead, Topps looks well placed to build up a good margin of safety against forecast expectations.’

Stevenson said he would review the numbers after the second quarter but he feels ‘more confident that forecast momentum has shifted’.

‘Topps shares are trading on a full year 2018 price/earnings ratio of just 11x and offer an attractive, well covered yield of 4.5%,’ he said.

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Look up the shares

  • BP PLC (BP.L)
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  • Persimmon PLC (PSN.L)
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  • WM Morrison Supermarkets PLC (MRW.L)
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  • Hastings Group Holdings PLC (HSTG.L)
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  • Topps Tiles PLC (TPT.L)
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