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The Expert View: Morrisons, Prudential and Antofagasta

Our daily roundup of analyst commentary on shares, also including Carnival and St Modwen.

by Michelle McGagh on Mar 15, 2018 at 05:00

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Key stats
Market capitalisation£5,083m
No. of shares out2,356m
No. of shares floating2,345m
No. of common shareholdersnot stated
No. of employees42054
Trading volume (10 day avg.)8m
Profit before tax£829m
Earnings per share12.95p
Cashflow per share29.89p
Cash per share13.96p

Jefferies: Morrisons can benefit from more self-help

Further self-help at Morrisons (MRW) will drive future earnings and progress on the balance sheet, says Jefferies.

Analyst James Grzinic retained his ‘buy’ recommendation and target price of 265p on the stock following full year results that reported profit before tax of £374 million, ahead of consensus of £371 million. The shares fell 4.9% to 215.3p yesterday.

‘Morrisons’ full-year results slightly beat consensus and the release points to considerable self-help still available to drive future earnings gains,’ he said.

‘In addition, strong progress on the balance sheet front allows for a 4p special dividend. Earnings visibility and income support are key to our “buy”, and both appear well underpinned after the finals.’

Grzinic also noted the ‘improving yield attractions and sensible valuation levels’ that ‘should serve shareholders well’.

Key stats
Market capitalisation£50,045m
No. of shares out2,587m
No. of shares floating2,575m
No. of common shareholdersnot stated
No. of employees26267
Trading volume (10 day avg.)3m
Profit before tax£6,537m
Earnings per share74.98p
Cashflow per share81.19p
Cash per share381.36p

Shareholders don’t benefit from Pru shake-up, says Hargreaves

Prudential’s (PRU) plans to demerge its UK business to form the standalone M&G Prudential and the sale of UK annuity assets makes sense but Hargreaves Lansdown said it was a shame the proceeds would not be handed back to shareholders.

A spin-off is not a complete surprise after Prudential combined its UK and European life business with M&G last summer, creating a business model akin to rivals Aviva and Legal & General.

However, the sale of UK annuity assets suggests the M&G Prudential is looking to emulate Standard Life Aberdeen, said analyst Nicholas Hyett.

He said that despite the sale, ‘it’s a shame the sales proceeds aren’t coming back to shareholders, especially given that it’s freeing up significant regulatory capital’.

‘The two businesses that emerge will be distinctive – a high growth emerging market play and a capital light dividend machine, eventually,’ said Hyett.

‘Both have their attractions, but probably for different kinds of investor, underlining the rationale for the split.’Shares in Prudential jumped 5.5% to £19.25 yesterday.

Key stats
Market capitalisation£9,302m
No. of shares out986m
No. of shares floating336m
No. of common shareholdersnot stated
No. of employees5427
Trading volume (10 day avg.)3m
Turnover3,402m USD
Profit before tax1,741m USD
Earnings per share0.55 USD
Cashflow per share1.29 USD
Cash per share1.64 USD

Antofagasta surprises with bigger dividend

Chilean copper miner Antofagasta (ANTO) is returning more cash than expected to shareholders but Berenberg said it was likely to be a one-off bumper payment.

Analyst Fawzi Hanano retained his ‘hold’ recommendation and increased the target price from 865p to 900p. The shares rose 3.5% to 946.2p yesterday.

‘The total 2017 dividend of $0.509 was well ahead of the $0.30 consensus estimate, with the company paying our 67% of earnings compared with a 35% minimum payout policy,’ he said.

‘This corresponds to a 4% dividend yield and positions Antofagasta closer to the large UK-listed diversified miners. We would not get too excited at this stage though as we expect the payout to normalise down towards the minimum 35% payout in the near term, reflecting rising capital expenditure commitments for brownfield expansions.’

He predicted an average dividend yield of 2.5% for 2018-2020.

Key stats
Market capitalisation£33,709m
No. of shares out715m
No. of shares floating181m
No. of common shareholdersnot stated
No. of employees97000
Trading volume (10 day avg.)1m
Turnover12,544m USD
Profit before tax3,119m USD
Earnings per share2.58 USD
Cashflow per share4.40 USD
Cash per share0.39 USD

Smoother sailing at Carnival, says Shore Capital

Shore Capital is expecting bookings at cruise ship operator Carnival (CCL) to have recovered in the last quarter following Hurricane Irma and said the shares were due a bounce.

Analyst Greg Johnson retained his ‘hold’ recommendation on the stock ahead of first quarter results where he expects guidance to be raised ‘modestly’. The shares were down 44p at £47.11 yesterday.

‘We expect bookings to have fully recovered post Hurricane Irma and, with the shares trading below their pre-hurricane season peak of over £53 last August, could be due a bounce, with our fair value at [approximately] £51,’ he said.

‘We have a “hold” stance on Carnival, with our positive expectations for the current-year tempered by concerns over the expected step-up in capacity growth over the medium term.

Key stats
Market capitalisation£844m
No. of shares out222m
No. of shares floating182m
No. of common shareholdersnot stated
No. of employees481
Trading volume (10 day avg.)m
Profit before tax£75m
Earnings per share26.66p
Cashflow per share27.38p
Cash per share0.23p

St Modwen discount will close, says Numis

St Modwen (SMP) has made progress against its strategic goals and Numis expects the property developer to close its 25% discount to net asset value.

Analyst Chris Millington reiterated his ‘buy’ recommendation and target price of 488p on the shares, which were flat at 379.8p yesterday.

‘Early progress against the new strategic goals has been good and the prospects in 2018 and beyond look positive,’ he said.

‘St Modwen’s strategy of increasing development activity and improving the mix of the income producing portfolio toward industrial and logistics schemes should help accounting returns rise toward double-digit levels over the next few years.’

He added that the increased returns would ‘help close the current 25% discount to November 2019 net asset value’.

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Look up the shares

  • Antofagasta PLC (ANTO.L)
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  • Carnival PLC (CCL.L)
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  • Prudential PLC (PRU.L)
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  • St. Modwen Properties PLC (SMP.L)
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  • WM Morrison Supermarkets PLC (MRW.L)
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