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The Expert View: Easyjet, Smiths Group & Thomas Cook

Our daily roundup of analyst commentary on shares, including Close Brothers and Hotel Chocolat.

by Michelle McGagh on Jul 19, 2018 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£6,732m
No. of shares out397m
No. of shares floating260m
No. of common shareholdersnot stated
No. of employees11655
Trading volume (10 day avg.)2m
Profit before tax£603m
Earnings per share76.83p
Cashflow per share125.95p
Cash per share334.33p

Easyjet on the right flight path, says Hargreaves

Easyjet (EZJ) has increased its profit guidance for the year but Hargreaves Lansdown said despite the more positive market outlook, there may be more turbulence.

The budget airline expects pre-tax profits of £550 million to £590 million this year, up from £530-£580 million, as it said the capacity from the collapse of Monarch airlines remains unfilled.

Analyst George Salmon said this hints that ‘the overcapacity headwinds that have plagued the sector might be starting to ease’.

‘Reduced competition is a clear positive, but trends in the wider market are out of Easyjet’s control,’ he said. ‘We think the results it’s starting to deliver from self-help measures, such as the dramatic increase in ancillary revenues, are particularly encouraging.’

However, operating costs and start-up losses from Air Berlin are higher than expected and Salmon said likely to come under scrutiny from new chief executive Johan Lundgren.

The shares rose 2% on Wednesday to close 35.5p higher at £16.88.

Key stats
Market capitalisation£6,354m
No. of shares out396m
No. of shares floating394m
No. of common shareholdersnot stated
No. of employees21900
Trading volume (10 day avg.)1m
Profit before tax£682m
Earnings per share142.32p
Cashflow per share172.53p
Cash per share197.74p

Smiths warning could lead to break-up, says AJ Bell

A profit warning from the medical division of engineering company Smiths Group (SMIN) could add to calls for a break-up of the group, says AJ Bell.

Smiths reported a return to growth for the year ending 31 July but its medical division has been hit by the termination of two US contracts and the suspension of some of its products in Europe.

Analyst Russ Mould said the diversification in the company is not proving a benefit at Smiths with ‘market attention drawn to struggling operations, overshadowing progress elsewhere’.

Although the medical division is struggling ‘the rest of the operations, which include oil services and detection technology, are doing well’, he said.

‘Today’s news may only add to calls for a break-up of the group and the company is continuing discussions about a potential combination of its medical arm with ICU Medical.;

The shares slid 7% or 122p on Wednesday to £16.27.

Key stats
Market capitalisation£1,553m
No. of shares out1,536m
No. of shares floating1,341m
No. of common shareholdersnot stated
No. of employees21,788
Trading volume (10 day avg.)4m
Profit before tax£588m
Earnings per share0.85p
Cashflow per share15.82p
Cash per share

Numis: ‘buy’ Thomas Cook despite summer sun

Numis has upgraded its recommendation for Thomas Cook (TCG) despite a knock to the travel agent’s forecasts from the distractions of sunny British weather and the World Cup.

Although she lowered her full-year 2018 earnings estimates by £15 million on the back of ‘strong summer weather’, analyst Kathryn Leonard raised the stock from ‘add’ to ‘buy’ with a target price of 154p, saying the 20% fall in the share price since the end of May had created value.

She added that although ‘we have only seen a couple of weeks of poor data thus far, given the weather outlook to mid-August, we believe it is now unlikely that pricing growth will remain in positive territory for the “lates” [last-minute bookings] market in North Europe and the UK’.

The shares closed broadly unchanged at 101.5p.

Key stats
Market capitalisation£2,305m
No. of shares out151m
No. of shares floating149m
No. of common shareholdersnot stated
No. of employees3,200
Trading volume (10 day avg.)0.2m
Profit before tax£363m
Earnings per share127.50p
Cashflow per share165.60p
Cash per share531.83p

Close is steady but not exciting, says Peel Hunt

Wealth manager Close Brothers (CBG) is one of the stronger of its peer group but Peel Hunt has warned that the current valuation means there is little to get excited about.

Analyst Stuart Duncan retained his ‘hold’ recommendation and target price of £16 on the stock, which closed unchanged at £15.22 on Wednesday after a ‘consistent’ third-quarter update.

Duncan said there was ‘little change in the overall message, with the group performing well’ and Close continues to be ‘one of the strongest companies in the sector’.

‘Close trades on annualised December 2018 price/earnings ratio of 10.7x, while yielding 4.4%, which does not look overly demanding,’ he said. ‘Close consistently delivers solid growth, importantly retaining the focus on returns and not loan book volumes. This places the business in good stead, although there is only modest upside to our target price.’

Key stats
Market capitalisation£395m
No. of shares out113m
No. of shares floating37m
No. of common shareholdersnot stated
No. of employees1058
Trading volume (10 day avg.)0.02m
Profit before tax£16m
Earnings per share7.76p
Cashflow per share11.07p
Cash per share7.51p

Hotal Chocolat in growth sweet spot, says Liberum

Hotel Chocolat (HOTC) has made ‘significant strides’ to ensure it can grow the brand internationally, and Liberum says it may happen sooner rather than later.

Analyst Wayne Brown retained his ‘buy’ recommendation and target price of 410p on the stock after full-year 2018 revenue came in in line with expectations, representing 12% year-on-year growth.

He said the hot weather had been unhelpful but there were multiple channels of growth and the ‘trading update is very strong in the context of the retail sector’.

‘There is no doubt that the strength of the brand, its balance sheets and cash-flow profile all point to what is a sustainable growth model,’ he said.

‘The group has made significant strides, laying a strong foundation for the future internationalisation of the brand. This may come sooner rather than later.’

Brown added that the 12% share price fall in May means the shares are currently at an ‘attractive entry point’.

The shares added 3p or 0.9% to 349p on Wednesday.

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  • Close Brothers Group PLC (CBRO.L)
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  • Easyjet PLC (EZJ.L)
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  • Hotel Chocolat Group PLC (HOTC.L)
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  • Smiths Group PLC (SMIN.L)
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  • Thomas Cook Group plc (TCG.L)
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