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The Expert View: Next, Aviva and Standard Chartered

Our daily roundup of analyst commentary on shares, also including Merlin Entertainments and Serco.

by James Sutton on Aug 04, 2017 at 05:00

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Key stats
Market capitalisation£6,459m
No. of shares out147m
No. of shares floating138m
No. of common shareholdersnot stated
No. of employees30525
Trading volume (10 day avg.)1m
Turnover£4,097m
Profit before tax£635m
Earnings per share438.14p
Cashflow per share517.24p
Cash per share33.80p

Next surges but ‘value trap’ fears persist

Next (NXT) surged to the top of the FTSE 100 yesterday, after reporting a return to sales growth. A rise of 0.7% in full-price sales over the three months to the end of July marked a swing from the previous quarter’s 3% fall.

However, Russ Mould, investment director at AJ Bell, said that there was still cause for concern if investors could not be tempted back.

‘The shares’ awful performance over the last year does suggest that some investors feel the stock may be a “value trap,” with the lowly valuation and juicy yield set to prove illusory as Next becomes the latest retailer to be chewed up by shoppers’ switch from bricks to clicks,’ he said.

Next’s share price jumped 9.3% to £43.83 yesterday. Peel Hunt and Shore Capital both reiterated their ‘hold’ recommendations on news of the results.

Key stats
Market capitalisation£21,704m
No. of shares out4,044m
No. of shares floating4,011m
No. of common shareholdersnot stated
No. of employees29530
Trading volume (10 day avg.)9m
Turnover£55,303m
Profit before tax£618m
Earnings per share15.11p
Cashflow per share31.23p
Cash per share734.55p

Solid update from Aviva show steady progress

Insurance group Aviva (AV) reported operating profits up 11% to £1.5 billion yesterday, largely in line with the consensus forecast. Profits rose by 8% to £1.3 billion in life insurance, mostly driven by improvements in the UK, France and Poland.

Around a third of the insurer’s £300 million share buy-back programme has now been completed. Shore Capital analyst Eamonn Flanagan said that ‘the capital position of the group is very robust’, and added that profitability, cash flows and the balance sheet are all ‘moving very nicely for Aviva’.

Aviva’s share price fell 1.3% to 536p yesterday. Flanagan reiterated his ‘hold’ recommendation in response to the results.

Key stats
Market capitalisation£1,275m
No. of shares out1,099m
No. of shares floating1,078m
No. of common shareholdersnot stated
No. of employees43176
Trading volume (10 day avg.)2m
Turnover£3,011m
Profit before tax£17m
Earnings per share1.54p
Cashflow per share6.24p
Cash per share16.10p

Liberum welcomes ‘reassuringly dull’ Serco results

Outsourcing group Serco (SRP) saw its share price jump 2.7% to 115.7p yesterday on news of first-half results largely in line with expectations.

Earnings per share dropped by 52%, from 3.3p to 1.6p, in line with expectations. Liberum analyst Joe Brent said the first half of the year was ‘always going to be weak’ and stick with his forecast of £67 million full-year trading profits.

The group’s outlook has been boosted in the longer term by the announcement that it has landed the £1.5 billion contract to operate the New Grafton Correctional Centre in New South Wales, Australia.

Brent reiterated his hold recommendation on the release of the ‘reassuringly dull’ results.

Key stats
Market capitalisation£4,707m
No. of shares out1,016m
No. of shares floating694m
No. of common shareholdersnot stated
No. of employees19489
Trading volume (10 day avg.)2m
Turnover£1,457m
Profit before tax£211m
Earnings per share20.72p
Cashflow per share33.59p
Cash per share21.17p

Berenberg braces for disappointment from Merlin

Falling visitor numbers at attractions such as Legoland and Blackpool Pleasure Beach may make for a disappointing set of first-half results for Merlin Entertainment (MER), according to Berenberg.

‘Merlin may have raised ticket prices too far,’ Berenberg analyst Owen Shirley warned yesterday, ahead of today’s results. He also claimed that lower-than-expected cinema admissions for the Lego Batman Movie had meant that the expected divisional boost for Legoland had failed to materialise; a result which he said was ‘unlikely to be taken well’.

Shirley noted that ‘earnings risk is skewed to the downside’ and maintained his ‘sell’ recommendation, in place since March. The shares fell 1.2% to 462.8p yesterday.

Key stats
Market capitalisation£26,057m
No. of shares out3,291m
No. of shares floating3,272m
No. of common shareholdersnot stated
No. of employees86693
Trading volume (10 day avg.)9m
Turnover9,840m USD
Profit before tax-362m USD
Earnings per share-0.11 USD
Cashflow per share0.07 USD
Cash per share33.01 USD

Standard Chartered faces revenue squeeze

Deutsche Bank has maintained its ‘sell’ rating on for Standard Chartered (STAN) after disappointing results from the Asia-focused bank.

‘Though Standard Chartered has made significant progress since 2015 in stabilising the business… we have yet to see growth return for revenues,’ said analyst David Lock.

‘The problem the group has faced is long-term downward pressure on its revenue to assets ratio, which we think is driven by two main sources: lower interest rates squeezing liability spreads and increasing competitive pressure squeezing asset spreads.’

Lock cut his target price on the bank to 668p from 674p. The shares edged 5p lower to 791.7p yesterday, and are down 6.4% since Wednesday’s results.

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  • Next PLC (NXT.L)
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  • Aviva PLC (AV.L)
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  • Serco Group PLC (SRP.L)
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  • Merlin Entertainments PLC (MERL.L)
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  • Standard Chartered PLC (STAN.L)
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