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The Expert View: GlaxoSmithKline, BP and Sainsbury's

Our daily roundup of analyst commentary on shares, also including WPP and Just Eat.

by Michelle McGagh on Nov 01, 2017 at 05:00

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Key stats
Market capitalisation£66,611m
No. of shares out4,919m
No. of shares floating4,862m
No. of common shareholdersnot stated
No. of employees99827
Trading volume (10 day avg.)13m
Profit before tax£9,219m
Earnings per share18.60p
Cashflow per share57.77p
Cash per share101.55p

Glaxo bid for Pfizer arm a bad idea, says Jefferies

Speculation that GlaxoSmithKline (GSK) may bid for Pfizer’s consumer business has undermined confidence in the pharma giant’s dividend, says Jefferies.

Analyst Jeffrey Holford retained his ‘buy’ recommendation but lowered the target price from £17.00 to £15.40 on the stock, which fell 1.1% to £13.57 yesterday.

‘Management has undermined confidence in the dividend,’ he said. ‘Investors fear it could be sacrificed to acquire Pfizer’s consumer business. We think the dividend is too important to too many GSK shareholders for management to pursue this strategy.’

He added that recent consumer deals ‘have not been successful’.

‘Despite our reservations on GSK, the stock price has fallen too much in our view and we believe it can rebound to £15.40 on earnings support alone.’

Key stats
Market capitalisation£101,164m
No. of shares out19,807m
No. of shares floating19,646m
No. of common shareholdersnot stated
No. of employees74500
Trading volume (10 day avg.)28m
Turnover139,414m USD
Profit before tax13,848m USD
Earnings per share0.00 USD
Cashflow per share0.59 USD
Cash per share0.92 USD

BP is a long way from rude health, says Hargreaves

The surprise decision of BP (BP) to resume share buybacks has pleased investors and shows the headwinds facing the oil giant are finally fading, although Hargreaves Lansdown believes the group has more to do to reach full health.

BP will be the first European oil and gas major to revive buybacks since the 2014 oil price slump. It will buy back around $1.6 billion of shares a year to offset the similar number of shares it issues with its ‘scrip’ dividend.

The announcement came as BP reported third-quarter underlying replacement cost profits, its definition of net income, of $1.87 billion, beating analysts’ forecast of $1.58 billion. BP further reassured shareholders that it could live with oil at $49 a barrel. Earlier this year its breakeven level was around $60.

Analyst Nicholas Hyett said BP had spent seven years addressing problems, such as the 2010 Gulf of Mexico disaster and the oil price crash. ‘However, there’s still lots to do at BP before the group is back in rude health. At almost $40 billion, the debt pile is still huge and paying it down seems likely to soak up much of the cash freed up by the falling Gulf of Mexico payments. The group also has to rustle up a further $1.4 billion of disposals if it’s to hit its full-year target.’

The shares gained 16p, or 3.3%, to 518.1p on Tuesday.

Key stats
Market capitalisation£5,319m
No. of shares out2,190m
No. of shares floating2,078m
No. of common shareholdersnot stated
No. of employees51900
Trading volume (10 day avg.)9m
Profit before tax£1,348m
Earnings per share16.54p
Cashflow per share44.08p
Cash per share54.06p

Berenberg: buy Sainsbury’s on first half weakness

Any share price weakness in Sainsbury’s (SBRY) after next week’s half-year results could make a good entry point for investors, says Berenberg.

Analyst Dusan Milosavljevic retained his ‘buy’ recommendation and target price of 300p on the stock, which edged 0.3% higher to 243.4p yesterday.

He predicted the supermarket would unveil underlying first half profits before tax of around £244 million. This would mark the end of margin declines as the grocery business recovers and benefits from the acquisition of Argos this year.

‘We believe some elements of H1 weakness are already priced in with Sainsbury’s trading at 25-30% discount to UK peers despite improving like-for-like momentum,’ he said.

‘On our earnings per share estimates, the shares trade at...9.5x price/earnings. We would buy Sainsbury’s on any weakness following the H1 results.’

Key stats
Market capitalisation£16,912m
No. of shares out1,265m
No. of shares floating1,218m
No. of common shareholdersnot stated
No. of employees198000
Trading volume (10 day avg.)7m
Profit before tax£2,373m
Earnings per share108.00p
Cashflow per share148.87p
Cash per share190.26p

Numis weighs WPP after latest reduction in forecasts

Numis Securities has placed its ‘add’ recommendation and share price target for WPP (WPP) ‘under review’ after the advertising agency reduced its full-year profits guidance for the third time this year.

Analyst Paul Richards said although WPP’s third quarter (Q3) results showed net sales beat consensus and its own forecasts, the group was guiding down expectations for the year. ‘The group has lowered its net sales guidance to “broadly flat” from flat to +1% and we expect to lower our estimate from flat to c.-1% predicated on Q4,’ he said.

‘We note that new business has picked up, which indicates improved momentum heading into 2018. The group now also guides for margin to be broadly flat, rather than previous guidance for +0.3%.’

Advertising agencies are under pressure as big advertisers place more of their marketing expenditure with Facebook and Google. Richards said after poor third quarter results from WPP’s rivals ‘the market was braced for a challenging quarter for QPP and we expect there will be some relief on revenue trends’. He added: ‘Offsetting this, we believe the margin guidance will be taken as disappointing. We put our recommendation “under review” pending confirmation of our forecasts.’

The shares fell 1.1% to £12.81 yesterday.

Key stats
Market capitalisation£5,252m
No. of shares out680m
No. of shares floating572m
No. of common shareholdersnot stated
No. of employees1621
Trading volume (10 day avg.)3m
Profit before tax£112m
Earnings per share10.55p
Cashflow per share14.08p
Cash per share19.25p

Peel Hunt: Just Eat taking a bigger bite of the market

Online takeaway service Just Eat (JE) is becoming cheaper at a quicker rate than its peers but the market is not factoring in potential new revenue streams, says Peel Hunt.

Analyst James Lockyer retained his ‘buy’ recommendation and target price of 895p on the stock, following third-quarter results that showed orders were up 29% year-on-year with revenue leaping 44%. The shares responded yesterday with a 32.5p ,or 4.4%, jump to 772.5p.

Lockyer said the business was ‘continuing to eat away at the market’ but it traded at a 41% discount to peers. ‘The online platform peer group trades on a 1.4x price/earnings growth and demonstrates a 16.4% 2016-2019 compound average growth rate. Just Eat is on 0.8x and 38.4%,’ he said.

‘Moreover, Just Eat is becoming cheaper at double the rate: a -62% decline in price/earnings between 2016 and 2019 compared to -12% for the peers.’

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Look up the shares

  • BP PLC (BP.L)
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  • GlaxoSmithKline PLC (GSK.L)
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  • J Sainsbury PLC (SBRY.L)
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  • Just Eat PLC (JE.L)
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