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The Expert View: Burberry, Merlin Entertainments & Hilton Food

Our daily roundup of analyst commentary on shares, including Aldermore and OneSavings Bank.

by Michelle McGagh on Oct 17, 2017 at 05:01

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Key stats
Market capitalisation£8,027m
No. of shares out427m
No. of shares floating403m
No. of common shareholdersnot stated
No. of employees9828
Trading volume (10 day avg.)2m
Profit before tax£572m
Earnings per share64.86p
Cashflow per share99.32p
Cash per share189.48p

Burberry (BRBY) could prove to be one of the sector’s most ‘exciting restructuring stories’, says Berenberg ahead of the first presentation from new chief executive Marco Gobetti.

Analyst Zuzanna Pusz retained her ‘buy’ recommendation and raised her target price on shares in the luxury good retailer from £18.96 to £20, commenting: ‘We expect Burberry to deliver a good performance in Q2, driven by the continued strength of the Chinese consumer - c.40% of sales - and accelerated innovation.’

The analyst added: ‘However, we believe that the short-term risk from management’s decision to potentially make a clean start in the US may present an entry opportunity into one of the sector’s most exciting restructuring stories.’

Pusz said she continues to like the stock and due to ‘strong brand and low penetration in the leather goods category, we see more scope for revenue growth’.

‘The structural change in its cost structure implemented by the new chief financial officer with at least £100 million in annualised cost savings by full-year 2019 provides an opportunity to address its historically low profitability versus peers.’

The shares closed 0.5% higher, up 9.8p at £19.02 on Monday.

Key stats
Market capitalisation£4,611m
No. of shares out1,020m
No. of shares floating699m
No. of common shareholdersnot stated
No. of employees19489
Trading volume (10 day avg.)3m
Profit before tax£451m
Earnings per share20.72p
Cashflow per share33.59p
Cash per share21.17p

Investment opportunities at Merlin Entertainments, says Numis

Alton Towers owner Merlin Entertainments (MERL) is trading at a discount to US peers and has underperformed the FTSE despite a rally, meaning Numis remains positive on the stock.

Analyst Tim Barrett retained his ‘add’ recommendation and target price of 553p on the stock, which eased 3.2p to 449.7p.

‘Merlin has underperformed the FTSE All Share by 15% since the start of June and now trades on a full-year 2018 price/earnings multiple of 18.8x, a 16% discount to US peers such as Six Flags and Cedar Fair,’ he said.

‘Previous temporary demand shocks have presented buying opportunities - for example, after the Alton Towers accident in May 2015 - the share price rallied by 25% within five months of its low point, and we remain positive on the investment case.’

Key stats
Market capitalisation£586m
No. of shares out74m
No. of shares floating52m
No. of common shareholdersnot stated
No. of employees2948
Trading volume (10 day avg.)m
Profit before tax£51m
Earnings per share33.22p
Cashflow per share62.49p
Cash per share80.63p

Hilton Food Group bags new profit stream

Hilton Food Group (HFG) is expanding its packing capability in New Zealand, which Shore Capital says will add another long-term profit stream to the company.

Analyst Darren Shirley reiterated his ‘buy’ recommendation on the stock, which shed 16p or 2% to 773p on Monday.

Hilton has announced it will construct a new meat processing facility in Auckland to supply New Zealand’s leading retailer Countdown Supermarkets. Shirley said the deal implies a potential long-term profit stream of £2.3-£2.7 million from New Zealand.

‘We do not adjust short-term profit expectations post the update, though expect modest start-up losses from full-year 2018-2020 before the profit stream builts, we will look to tweak forecasts post speaking to management,’ he said.

‘Trading on a full-year 2017 price/earnings ratio of 22x, an embedded value/EBITDA [earnings] multiple of 9.5x and yielding 2.3% we reiterate our ‘buy’ stance.’

Key stats
Market capitalisation£1,047m
No. of shares out345m
No. of shares floating339m
No. of common shareholdersnot stated
No. of employees845
Trading volume (10 day avg.)5m
Profit before tax£138m
Earnings per share25.17p
Cashflow per share28.62p
Cash per share53.26p

Takeover bid undervalues Aldermore, says Peel Hunt

A takeover approach by Africa’s biggest lender FirstRand undervalues UK challenger bank Aldermore (ALD), says Peel Hunt.

Analyst Antony Da Costa retained his ‘buy’ recommendation and increased the target price from 280p to 313p, in line with the takeover offer.

He said the offer was the equivalent to 1.5x 2018 estimated net asset value, adding that rival Shawbrook was ‘taken out at 1.6x’ this year.

‘For Aldermore’s shareholders, we believe this offer undervalues the attractions of Aldermore’s business model, including the deposit-taking capability,’ he said.

‘We consider this potential bid appears low for shareholders, especially since forecasts are likely to rise given lending momentum continues and industry impairments remain subdued. Other competitors may find they could raise the current bid, especially when considering the various synergies that could be achieved.’

Shares in Aldermore were slightly softer on Monday, closing at 303.2p.

Key stats
Market capitalisation£972m
No. of shares out243m
No. of shares floating238m
No. of common shareholdersnot stated
No. of employees775
Trading volume (10 day avg.)3m
Profit before tax£143m
Earnings per share49.43p
Cashflow per share50.49p
Cash per share0.17p

Jefferies reaffirms confidence in OneSavings Bank

A meeting with April Talintyre, chief financial officer of OneSavings Bank (OSB), has reaffirmed Jefferies’ confidence in the challenger bank.

Analyst Kapilan Pillai retained his ‘buy’ recommendation and target price of 512p on the stock, which gained 4.5p or 1.1% to 398p.

He said the meeting ‘reaffirms confidence in our ‘buy’ case’. ‘OneSavings Bank is a market share taker in the increasingly professionalised buy-to-let sector,’ he said. ‘Fears over high street banks returning to the market plus an impending deposit price war from the term funding scheme closure in February are likely overdone.’

He said that as growing excess capital levels will ‘eventually dilute OneSavings Bank’s 26% return on tangible equity, shareholders would rather see management conserve capital to grow’.

‘Loan portfolio bids have been unsuccessful year-to-date, although any Brexit induced downturn could create opportunities,’ added Pillai.

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Look up the shares

  • Aldermore Group PLC (ALD.L)
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  • OneSavings Bank PLC (OSBO.L)
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  • Burberry Group PLC (BRBY.L)
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  • Hilton Food Group PLC (HFG.L)
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  • Merlin Entertainments PLC (MERL.L)
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