The Expert View: Carillion, Paddy Power and Premier Foods

Key stats
Market capitalisation	£522m
No. of shares out	430m
No. of shares floating	426m
No. of common shareholders	not stated
No. of employees	31628
Trading volume (10 day avg.)	3m
Turnover	£4,395m
Profit before tax	£124m
Earnings per share	26.13p
Cashflow per share	36.71p
Cash per share	109.18p

Carillion: rights issue on the horizon, says Hargreaves Lansdown

Shares in support services company Carillion (CLLN) tumbled after a profit warning and Hargreaves Lansdown said a ‘significant’ rights issue could be on the cards.

A profit warning, a suspended dividend and the announcement that chief executive Richard Howson was stepping down led to the shares falling 39% to 117.1p.

Analyst Nicholas Hyett said debt at the firm had continued to climb and that the construction business was hitting ‘one hurdle after another’.

‘With revenue falling, the group’s target of reducing leverage this year has been scrapped,’ he said. ‘The focus has instead moved to improving short term cashflow ahead of a full review in September.

‘Judging by this announcement, the board are prepared to do everything it takes in order to save the ship. But talk of a review of capital structure, and the ongoing debt problem, will leave investors worried that a significant rights issue could be on the horizon.’

Key stats
Market capitalisation	£1,558m
No. of shares out	241m
No. of shares floating	239m
No. of common shareholders	not stated
No. of employees	1206
Trading volume (10 day avg.)	1m
Turnover	£121m
Profit before tax	£224m
Earnings per share	93.21p
Cashflow per share	96.04p
Cash per share	19.23p

Share lag at Unite creates opportunity, says Liberum

There is an opportunity at Unite (UTG) as shares in the student accommodation company continue to lag, according to Liberum.Analyst David Brockton retained his ‘buy’ recommendation and a target price of 720p on the stock. The shares rose 1.5% to 649.5p yesterday.

Brockton pointed to Unite’s latest quarterly valuations for its joint ventures, which he described as ‘robust’ and the progress on reservations for the academic year.

‘Unite’s share price continues to lag its sector-leading returns, creating opportunity,’ he said.

‘Student accommodation continues to offer a positive combination of income and rental growth prospects. We view the prospect of sustained above inflationary rental growth on top of a portfolio generating a 5.5% rental yield as attractive.’

Peel Hunt: Paddy Power will outperform again

Peel Hunt is not expecting upbeat interim results from Paddy Power Betfair (PPB) but still believes the shares will outperform.

Analyst Ivor Jones retained his ‘buy’ recommendation but lowered the target price from £110.00 to £100.00 ahead of interims. The shares were trading down 0.9%, or 75p, at £80.00 yesterday.

‘We were tidying up our model for the end of the first half and a few percent of our forecast appears to have gone up the vacuum cleaner, partly through accounting for a poor end to the soccer season,’ he said.

Jones added he was not expecting ‘a particularly upbeat management tone to accompany interims on 8 August’.

‘But after that, with the Paddy Power brand migrated and product upgraded and the related revenue and cost benefits starting to flow through, we believe the shares will outperform again.’

Key stats
Market capitalisation	£338m
No. of shares out	833m
No. of shares floating	659m
No. of common shareholders	not stated
No. of employees	4132
Trading volume (10 day avg.)	4m
Turnover	£790m
Profit before tax	£6m
Earnings per share	0.66p
Cashflow per share	7.10p
Cash per share	0.37p

Premier Foods needs to deliver on turnaround, says Jefferies

A new plan of action for Premier Foods (PFD) means Jefferies is feeling more positive about the company.Analyst Martin Deboo retained his ‘hold’ recommendation and increased the target price from 43p to 46p. The shares were trading down 3% at 40.5p yesterday.

He predicted first quarter like-for-like sales would be down 1.6% but said sales would then improve, adding there was ‘material upside potential, if management can convince’.

‘We were feeling more positive about Premier Foods on the day of the preliminary results and remain so now, following second half warnings,’ he said.

‘The new plan promises a more valuable and sustainable Premier Foods if it can be delivered. But things remain tight and interplay between ongoing weak market conditions and flattish marketing investment is a risk factor. Management also need to re-establish their credibility and a track record on trading.’

Key stats
Market capitalisation	£1,177m
No. of shares out	202m
No. of shares floating	97m
No. of common shareholders	not stated
No. of employees	5675
Trading volume (10 day avg.)	m
Turnover	£881m
Profit before tax	£102m
Earnings per share	50.33p
Cashflow per share	62.78p
Cash per share	7.38p

Deutsche Bank: Dunelm valuation ‘undemanding’

Trading is up at Dunelm (DNLM) but margins are down and Deutsche Bank believes shares in the homewares store are changing hands at an ‘undemanding’ level.

Analyst Charlie Muir-Sands retained his ‘hold’ recommendation but lowered the target price from 730p to 665p following a fourth quarter trading update. The shares fell 6.2% to 581.5p yesterday.

He said the quarter had seen better top line trends but that this was due to higher clearance sales and ‘lower margin seasonal ranges and online growth’.

‘Full-year June 2017 underlying profit before tax is guided 3% below our estimates and… we lower full-year 2018 profit expectations, as well as cashflow forecasts due to higher inventories,’ said Muir-Sands.

‘Our discounted cashflow based target falls to 665p. Hence, despite the relatively undemanding valuation – 11 times 2018 price/earnings – we retain our “hold” rating.’