The Expert View: Hargreaves, Vodafone and EasyJet

Key stats
Market capitalisation	£58,405m
No. of shares out	26,623m
No. of shares floating	26,519m
No. of common shareholders	not stated
No. of employees	107667
Trading volume (10 day avg.)	58m
Turnover	47,430m EUR
Profit before tax	-4,658m EUR
Earnings per share	-0.17 EUR
Cashflow per share	0.25 EUR
Cash per share	0.58 EUR

Hargreaves Lansdown: Vodafone faces ‘perennial problems’

Vodafone (VOD) is in the black on an operating level but Hargreaves Lansdown said there are perennial problems at the telecoms giant.

Despite a headline €6.1 billion loss sparked by a €5 billion writedown in its India business, the telecommunications giant reported a 5.8% rise in underlying earnings and a 2% rise in the final dividend. This saw the shares advance 3.8%, or 8p, to 219p.

Analyst George Salmon said the UK business was still suffering a ‘hangover’ from the implementation of a new billing system and there was ‘the small matter of a €6.1 billion loss on the bottom line’, but at an operating level it was ‘still in the black’.

Most of the company’s concerns stem from India where it faces competition from new network Jio.

‘Vodafone has the perennial problem of balancing fierce competition on tariffs with the punitive costs of acquiring spectrum refreshing infrastructure, which are for the most part unavoidable,’ said Salmon.

‘As far as investors go, this has translated into a dicey balance between Vodafone’s free cashflow and the dividends it pays out to shareholders. Hopefully coverage can improve in future.’

Key stats
Market capitalisation	£6,652m
No. of shares out	474m
No. of shares floating	234m
No. of common shareholders	not stated
No. of employees	970
Trading volume (10 day avg.)	1m
Turnover	£388m
Profit before tax	£177m
Earnings per share	37.26p
Cashflow per share	38.44p
Cash per share	44.11p

Numis: Vanguard no competition for Hargreaves Lansdown

Shares in Hargreaves Lansdown (HRGV) fell as passive fund giant Vanguard announced plans to enter the platform market, but house broker Numis says it is not concerned about the competition.

Analyst James Hamilton retained his ‘add’ recommendation and target price of £14.97 on Hargreaves’ shares, which fell 6.3%, or 90.6p, to £13.78 yesterday on news of Vanguard’s move.

Hamilton said there were ‘a few fundamental problems’ with Vanguards’ offer that meant it would not take Hargreaves’ platform crown.

‘It is not open architecture, you can’t have a Sipp, you can’t buy shares and the brand is not known outside of the City,’ he said.

‘There have been a number of low-cost competitors that have made no progress against Hargreaves Lansdown, including those with deep pockets and a strong brand like Lloyds. We believe that not being able to have all of your assets in one place is a fundamental dealbreaker and we are not concerned about the Vanguard offering.’

Key stats
Market capitalisation	£4,896m
No. of shares out	397m
No. of shares floating	259m
No. of common shareholders	not stated
No. of employees	10273
Trading volume (10 day avg.)	4m
Turnover	£4,669m
Profit before tax	£427m
Earnings per share	107.56p
Cashflow per share	150.13p
Cash per share	243.95p

Easyjet’s first half worse than expected, says Liberum

Liberum was expecting a challenging first half at budget airline Easyjet (EZJ) but results have been even worse than predicted.

Analyst Gerald Khoo retained his ‘sell’ recommendation and target price of 825p on the stock, after the airline reported £212 million in losses in the first half of the year. The shares slid over 7% to close 94.5p down at £12.15.

‘The first half was always going to be challenging, given Easter timing and foreign exchange headwinds, and it has been a touch worse than expected,’ he said.

‘Revenue per seat fell by 9.7% constant currency, at the worse end of guidance.’

Khoo said that given the bleak picture, the shares looked expensive. ‘On our current published estimates, Easyjet trades on a September 2017 estimated price-earnings ratio of 17.6%. This is a material premium to Ryanair.

‘In our view, Easyjet’s premium rating is pricing in a substantial upgrade to current year estimates. In turn, the premium to Ryanair suggests the source of this upgrade must be specific to Easyjet. We remain to be convinced such a catalyst will be forthcoming.’

Key stats
Market capitalisation	£1,577m
No. of shares out	255m
No. of shares floating	243m
No. of common shareholders	not stated
No. of employees	849
Trading volume (10 day avg.)	1m
Turnover	£997m
Profit before tax	£157m
Earnings per share	60.85p
Cashflow per share	61.32p
Cash per share	111.85p

More to go at Crest Nicholson, says Peel Hunt

Peel Hunt is still seeing upside at house builder Crest Nicholson (CRST), despite it being the best performer in its sector in the past year.

Analyst Gavin Jago retained his ‘buy’ recommendation and target price of 740p on the stock after a ‘solid’ half-year update.

‘A reassuring trading statement, with the group on track to deliver c.10% revenue growth this year,’ he said.

‘With outlet numbers rising smartly and a new division opening in the next few months, the group is also well on track to meet its 2019 targets of £1.4 billion revenues and 4,000 units.’

He said that despite the shares being the best performers in the housebuilding sector – rising 40% year to date against a sector average of 26% – he had left his forecasts unchanged and ‘we still see decent upside’.

The shares declined 9.8p on Tuesday to close 1.5% lower at 626.7p.

Key stats
Market capitalisation	£1,319m
No. of shares out	1,099m
No. of shares floating	1,079m
No. of common shareholders	not stated
No. of employees	43176
Trading volume (10 day avg.)	4m
Turnover	£3,011m
Profit before tax	£17m
Earnings per share	1.54p
Cashflow per share	6.24p
Cash per share	16.10p

2017 marks financial nadir for Serco, says Shore Capital

Shore Capital expects this year to be the nadir of financial performance at Serco (SRP) and for progress to begin to show.

Analyst Robin Speakman retained his ‘hold’ recommendation following an analysts’ dinner with Serco finance director Angus Cockburn. The shares added 1.7p on Tuesday to close 1.4% up at 121.4p.

Cockburn provided an insight into the strategy for ‘continued improvement and a return to growth’.

‘Our overriding impression was that the management team are now more relaxed over group “command and control”, “fires” have been put out and the group is now moving forward on the front foot,’ said Speakman.

‘We conclude that challenges remain for Serco, but that the management team is now firmly in control with a more relaxed view of the outlook and a focus on future positive group development.’

He added that he was struggling to ‘extract a positive valuation case over the medium term’ but recognised the ‘progress coming through’.

‘We expect the current full-year 2017 financial year to be the nadir of financial performance, stronger metrics emerging next year,’ he said.