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The Expert View: British American Tobacco, ITV and IG Group

Our daily roundup of analyst commentary on shares, including Kier and hVIVO.

by Michelle McGagh on Sep 21, 2018 at 05:01

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Key stats
Market capitalisation£80,631m
No. of shares out2,294m
No. of shares floating2,213m
No. of common shareholders115,842
No. of employees55,761
Trading volume (10 day avg.)4m
Profit before tax£7,829m
Earnings per share1,360.26p
Cashflow per share1,408.44p
Cash per share146.32p

Jefferies: BATS board showed boss Durante the door

News that British American Tobacco (BATS) chief executive Nicandro Durante is stepping down after 37 years with the business worries Jefferies which thinks it may be taken as a bad sign.

Analyst Owen Bennett remained ‘bullish’ on the tobacco giant but added it was a strange time for Durante to announce his retirement next April amid a sector-wide malaise over slowing sales growth.

‘We think the market is likely to conclude that this was a board-driven decision in response to recent share price performance and investor frustration at a lack of communication or tangible guidance over the past 12 months.’

He added that he feared the ‘news will be used to justify the view that the business is in trouble’.

The shares slipped 47p or 1.3% to £35.15, taking their decline this year to 28%, amid reports that chief marketing officer Andrew Gray was the frontrunner to succeed Durante.

Key stats
Market capitalisation£6,124m
No. of shares out4,025m
No. of shares floating3,593m
No. of common shareholders-
No. of employees6,055
Trading volume (10 day avg.)12m
Profit before tax£829m
Earnings per share10.41p
Cashflow per share13.29p
Cash per share3.13p

ITV diversifying but questions to answer, says Liberum

A capital markets day at ITV (ITV) showed how the broadcaster is broadening its business but didn’t remove the uncertainty over its bid for Big Brother maker Endemol or current TV trading, says Liberum.

Analyst Ian Whittaker reiterated his ‘buy’ recommendation and share price target of 275p after the City presentation set out ‘the work it is doing to diversify its revenue streams away from linear TV advertising’.

Whittaker believes 45% of ITV’s earnings growth will come from outside TV in future.

‘There was nothing said on a potential Endemol bid but ITV state it was happy with the state of its current production assets, which may suggest a bid is less likely,’ he said.

‘However, given the market’s attention on current TV trading and an Endemol bid, the day is unlikely to provide a catalyst until the market feels comfortable on both these situations.’

The shares eased a penny to 152p.

Key stats
Market capitalisation£2,907m
No. of shares out370m
No. of shares floating365m
No. of common shareholders-
No. of employees1,597
Trading volume (10 day avg.)1m
Profit before tax£299m
Earnings per share61.20p
Cashflow per share65.96p
Cash per share95.58p

Shore Capital: IG Group hit by betting clampdown

First quarter results from IG Group (IGG) did nothing to reassure Shore Capital that the spread-betting firm is not under pressure.

Analyst Paul McGinnis retained his ‘sell’ recommendation and ‘fair value’ price of 800p on the stock after the trading statement showed revenues had fallen 4.7% on a year ago.

IG shares tumbled 75p or 8.7% to 789p after the business was hit by less volatile markets and a clampdown by regulators on high-risk financial bets.

‘Despite strong execution from management during this period of uncertainty, we downgraded IG from ‘hold’ to ‘sell’ on 3 August,’ he said.

‘This was based on what we considered to be a rating that had become overstretched, with investors potentially underestimating the determination of regulators to clamp down on an activity that was leading to poor outcomes for the overwhelming majority of retail investors whose full understanding of the risks involved in regulated investment products was questionable.’

ESMA, the European Union’s securities watchdog, last month renewed a ban on the sale of ‘binary’ options to retail customers. IG chief executive Peter Hetherington said the company had seen more people opt in to a ‘professional’ category to side-step the restrictions, although analysts were disappointed by the low number of customers reclassifying themselves.

Key stats
Market capitalisation£1,032m
No. of shares out98m
No. of shares floating93m
No. of common shareholders-
No. of employees17,940
Trading volume (10 day avg.)0.5m
Profit before tax£143m
Earnings per share15.24p
Cashflow per share67.66p
Cash per share532.31p

‘Material upside’ at Kier, says Peel Hunt

Construction and property group Kier (KIE) defied the Brexit slowdown in its sector by reporting a bigger-than-expected rise in annual profit.

Peel Hunt analyst Andrew Nussey retained his ‘buy’ recommendation and target price of £16 on the stock after Kier posted a 9% rise in underlying pre-tax profits to £137 million, more than the £130 million consensus analyst forecast.

The company also expected cost-cutting to improve profits and cash-flow by at least £20 million by 2019/20

‘Given the positive news and the undemanding valuation – 6.3x June 2020 price/earnings and 7.3% yield – we expect the shares to perform well given management delivery,’ said Nussey.

‘The shares have rallied slightly over the last week, but as investors appreciate the underlying momentum, the attractive end-market positioning and the potential for faster deleveraging, we see material upside,’ he added.

After an early spike the shares retreated to close 15p or 1.4% down at £10.28.

Key stats
Market capitalisation£51m
No. of shares out79m
No. of shares floating75m
No. of common shareholders-
No. of employees168
Trading volume (10 day avg.)0.1m
Profit before tax£-12m
Earnings per share-16.49p
Cashflow per share-14.59p
Cash per share25.95p

Numis: hVIVO a world leader

Numis Securities has increased its target price for scientific research company hVIVO (HVO), which it says has shown itself to be a ‘world leader’ in its field.

Analyst Paul Cuddon retained his ‘buy’ recommendation but lifted his share price target to 80p after interim results showed half-year revenues up 24% to £4.9 million on a year before with the company on track to meet full-year expectations.

Costs are ‘significantly reduced’ leaving a net loss of £4.4 million down from -£7.7 million in the first half of 2017.

‘hVIVO is a genuine world leader in specialist research services and it is good to see the new management team getting the business back with the signing of an £11.9 million contract and the strongest sales pipeline for several years,’ he said.

‘We raise our price target to 80p and retain our ‘buy’ rating with increasing conviction.’

The shares were trading up 6.8%, or 4.4p, at 68p.

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  • British American Tobacco PLC (BATS.L)
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  • IG Group Holdings PLC (IGG.L)
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  • Kier Group PLC (KIE.L)
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  • Hvivo PLC (HVO.L)
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