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The Expert View: Derwent London, BT and Aldermore

Our daily roundup of analyst commentary on shares, also including Supergroup and SIG.

on May 12, 2017 at 05:00

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Key stats
Market capitalisation£3,210m
No. of shares out111m
No. of shares floating96m
No. of common shareholdersnot stated
No. of employees100
Trading volume (10 day avg.)m
Profit before tax£59m
Earnings per share52.59p
Cashflow per share48.38p
Cash per share15.89p

Derwent confounds the property doom-mongers

The post-Brexit Armageddon scenario for London property has not come to pass and Numis is confident of the outlook for real estate investment trust Derwent London (DLN).

Analyst Robert Duncan reiterated his ‘buy’ recommendation and target price of £34.20 on the stock after a first quarter trading statement. He noted that while the outlook remained upbeat for London rentals, the opportunity for rental growth and yield was limited.

‘Following the EU referendum, the consensus view was that the London office market was facing an Armageddon scenario. To date this fatalistic scenario has not come to pass and we remain confident in the outlook,’ he said.

‘To be clear, this does not mean that we expect material rental growth or yield compression from here, but based on robust levels of demand and increasingly limited supply in both occupational and investment markets, we do not expect material rental or yield weakness.’

He added the 19% discount to NAV that the trust traded on ‘overstates the risks facing Derwent’.

At the time of writing, shares were trading 25p higher at £28.79.

Key stats
Market capitalisation£30,237m
No. of shares out9,959m
No. of shares floating8,337m
No. of common shareholdersnot stated
No. of employees102500
Trading volume (10 day avg.)19m
Profit before tax£2,588m
Earnings per share29.70p
Cashflow per share59.88p
Cash per share39.30p

BT faces more hurdles, says Hargreaves Lansdown

BT (BT) has announced a restructure, a new dividend policy and cut 4,000 jobs as profits fall 19% but there are more millstones round the telecommunications giant’s neck, says Hargreaves Lansdown.

Full-year results from the company were in line and the dividend increased 10% but BT scrapped its target of increasing the payout by at least 10% next year in favour of a ‘progressive’ policy. At the time of writing the shares were down 2.2%, or 6.9p, at 305p.

Analyst George Salmon said the fact chief executive Gavin Patterson had lost his bonus this year would be little consolation to the 4,000 people losing their jobs in the restructuring of the global division, which has suffered from the accounting scandal in Italy.

He added that the numbers ‘hardly inspire much confidence’ and that there was a ‘distinct lack of guidance beyond the coming year’.

‘BT has got several millstones hanging around its neck at the moment, not least the huge debts taken on to acquire EE and its sizeable pension deficit, which is due for a funding review in June,’ said Salmon.

‘In addition, compensation relating to malpractice at Openreach is set to drain another £300 million from the coffers this year, so one has to wonder how “progressive” the new dividend policy can be.’

Key stats
Market capitalisation£866m
No. of shares out345m
No. of shares floating339m
No. of common shareholdersnot stated
No. of employees845
Trading volume (10 day avg.)1m
Profit before tax£87m
Earnings per share25.17p
Cashflow per share28.62p
Cash per share53.26p

Peel Hunt downgrades Aldermore after rally

Peel Hunt has downgraded Aldermore (ALD) after a share price rally at the challenger bank.

Analyst Anthony Da Costa downgraded his recommendation from ‘buy’ to ‘add’ with a target price of 275p on the stock after a first quarter update. The shares fell 2% to 251.9p yesterday.

In its update the bank said its financial performance should come in ahead of expectations this year.

‘After a share price rally - up 10% over one month - the shares now trade on 1.4 times price to net asset value, on 2017 estimates. We move our recommendation from “buy” to “add”,’ said Da Costa.

‘We estimate that Aldermore will deliver return on equity of 17% for 2017.’

The bank’s capital ratio, which will be used to determine the level of dividend payout, is slightly behind target but ‘well ahead of statutory requirements and sufficient to sustain double-digit loan growth’ said Da Costa.

‘Aldermore does not yet pay a dividend but we expect it to be capital accretive over 2017 and have the ability to pay a maiden dividend of 4.1p (consensus: 4.2p),’ he added.

Key stats
Market capitalisation£1,279m
No. of shares out81m
No. of shares floating51m
No. of common shareholdersnot stated
No. of employees2787
Trading volume (10 day avg.)m
Profit before tax£41m
Earnings per share50.63p
Cashflow per share89.82p
Cash per share123.96p

Issues remain at SuperGroup: Liberum downgrades

Liberum has downgraded SuperGroup (SGP) as the fashion brand still has some issues to address despite strong top line growth.

Analyst Adam Tomlinson downgraded his recommendation from ‘buy’ to ‘hold’ with a target price of £17.50 on the stock. At the time of writing shares had plunged 7%, or 118p, to £15.33.

He noted the ‘strong top line growth across retail and wholesale’ was offset by ‘gross margins that are lower than expected and revenue growth has benefitted materially from foreign exchange’.

‘The lack of operational gearing may disappoint but maintaining overall momentum is a commendable achievement,’ he said. ‘While we keep our forecasts and recently reduced target price unchanged, the preliminary results should offer an opportunity to address questions around operational gearing, preparedness and strategy... and progress made in the supply chain.’

Key stats
Market capitalisation£735m
No. of shares out591m
No. of shares floating547m
No. of common shareholdersnot stated
No. of employees10315
Trading volume (10 day avg.)2m
Profit before tax£-119m
Earnings per share-20.14p
Cashflow per share-13.33p
Cash per share21.76p

SIG has a solid plan despite inflation fears, says Jefferies

Management at specialist construction material company SIG (SHI) are focusing on debt reduction, which Jefferies said was the right plan in light of inflation concerns.

Analyst Sam Cullen retained his ‘hold’ recommendation and target price of 110p on the stock, which was trading up 1.3%, or 1.7p, at 125p at the time of writing.

‘In line with peers, SIG reported a solid start to the year, with like-for-like growth of 1.4%, and no change to expectations at this juncture,’ he said.

‘Though the market remains somewhat uncertain, and price inflation could present the industry with difficulties should volumes weaken, we are encouraged by management’s decision to focus on debt reduction and further simplify the portfolio.’

He added that at the current price the shares traded on a 14% discount to the wider sector.

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Look up the shares

  • Derwent London PLC (DLN.L)
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  • BT Group PLC (BT.L)
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  • Aldermore Group PLC (ALD.L)
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  • SuperGroup PLC (SGP.L)
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