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The Expert View: Next, Diageo and Hilton

Our daily roundup of analyst commentary on shares, also including Standard Life Aberdeen and Morgan Sindall.

by Michelle McGagh on Nov 02, 2017 at 05:00

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Key stats
Market capitalisation£6,624m
No. of shares out147m
No. of shares floating138m
No. of common shareholdersnot stated
No. of employees30525
Trading volume (10 day avg.)1m
Profit before tax£943m
Earnings per share438.14p
Cashflow per share517.24p
Cash per share33.80p

Next results improving but market still spooked

Next (NXT) shares slumped on third quarter results that fell short of what the stock market was expecting, and Hargreaves Lansdown believes the news could have wider implications.

The shares tumbled 7.5% to £45.52 as the retailer warned of ‘extremely volatile’ trading and reported a 1.3% rise in full-price sales for the third quarter, below expectations of a 4% jump.

‘Next’s third quarter performance is actually better than what we’ve seen from the group so far this year, but with many expecting a much stronger showing, the shares still took a tumble,’ said analyst George Salmon.

Although the investment in digital has helped the directory division, the high street stores saw ‘an almighty slump this quarter’, boding ill for momentum into the Christmas period.

‘While clearly not good news for Next investors, these results won’t have gone unnoticed by others across the market either,’ he said. ‘Shareholders in Marks and Spencer, for example, might now be a bit more nervous ahead of next week’s half year numbers.’

Key stats
Market capitalisation£64,278m
No. of shares out2,505m
No. of shares floating2,492m
No. of common shareholdersnot stated
No. of employees30051
Trading volume (10 day avg.)5m
Profit before tax£3,997m
Earnings per share107.69p
Cashflow per share126.36p
Cash per share50.52p

Asia competition fears dog Diageo

Liberum is concerned about the competition drinks company Diageo (DGE) is facing in Asia and believes the positives of the business are already reflected in the share price.

Analyst Nico von Stackelberg retained his ‘sell’ recommendation and target price of £20.00 on the shares, which fell 1.1% to £25.45 yesterday.

‘The [greater China and Asia division of the] company is performing in line with its expectations for the first four months of the 2018 fiscal year,’ he said.

‘While the fundamentals are broadly the same, there are still some areas of concerns in regions such as South Korea, Thailand and Indonesia. In China, Diageo is competing against well capitalised competitors.’

He added that while the company earned high returns on capital employed with high single-digit earnings growth, ‘we believe this is more than reflected in the current valuation’.

Key stats
Market capitalisation£656m
No. of shares out74m
No. of shares floating52m
No. of common shareholdersnot stated
No. of employees2948
Trading volume (10 day avg.)m
Profit before tax£51m
Earnings per share33.22p
Cashflow per share62.49p
Cash per share80.63p

Peel Hunt downgrades Hilton as shares climb

Strong share price performance at Hilton Food Group (HFG), the UK’s largest supplier of red meat, has resulted in a Peel Hunt downgrade.

Analyst Charles Hall downgraded his recommendation from ‘buy’ to ‘hold’ and increased the target price from 850p to 925p. The shares are up 39% so far this year but fell 1.5% to 878.5p yesterday.

‘Hilton’s model is gaining acceptance with leading global retailers and the acquisition of [Icelandic fish business] Seachill brings additional growth opportunities in a new category,’ he said.

‘Execution has been excellent thus far, though there must be some risk of over-reach. The projects already announced provide excellent visibility and we forecast profits growth by more than 60% over the next five years.’

Key stats
Market capitalisation£12,878m
No. of shares out2,977m
No. of shares floating2,864m
No. of common shareholdersnot stated
No. of employees6302
Trading volume (10 day avg.)6m
Profit before tax£1,082m
Earnings per share18.61p
Cashflow per share25.13p
Cash per share401.14p

Positive momentum at Standard Life Aberdeen, says Jefferies

Standard Life Aberdeen (SLA) is trading at an ‘attractive’ discount to its peer group and Barclays believes positive momentum is starting to build at the asset manager.

Analyst Daniel Garrod retained his ‘overweight’ recommendation and increased the target price from 510p to 520p.The shares edged 1.5p higher to 431.4p yesterday.

‘Standard Life remains our one key “overweight” among the UK listed asset managers,’ he said.

‘We believe its discounted price/earnings multiple versus peers at only 13 times 2018 [estimated earnings] remains highly attractive.’

He said that while the group had suffered outflows from its flagship Gars fund after poor performance, the ‘momentum appears positive’ and ‘improvement in macro sentiment and performance should drive inflows into Aberdeen’s emerging markets funds’.

Key stats
Market capitalisation£671m
No. of shares out45m
No. of shares floating37m
No. of common shareholdersnot stated
No. of employees5982
Trading volume (10 day avg.)m
Profit before tax£47m
Earnings per share81.42p
Cashflow per share96.68p
Cash per share511.09p

Numis: significant upside at Morgan Sindall

Numis has upped its estimates for construction group Morgan Sindall (MGNS) again but says the shares are still not looking very expensive.

Analyst Howard Seymour retained his ‘add’ recommendation and target price of £15.65 on the shares, which jumped 3.6% to £14.95 yesterday.

‘Another upgrade is worth putting in context,’ he said. ‘Since the start of 2017, we have upped profit before tax estimates by c.25% and average daily net cash expectations by over £100 million.

‘This reflects an enviable mix of market strength in fit out, management actions in construction and infrastructure, and benefits of investment using the balance sheet in urban regen and partnership housing.’

He added that the shares ‘do not look expensive on fundamentals’ and that there was still ‘significant upside’.

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  • Next PLC (NXT.L)
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  • Diageo PLC (DGE.L)
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  • Hilton Food Group PLC (HFG.L)
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  • Standard Life Aberdeen PLC (SLA.L)
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  • Morgan Sindall Group PLC (MGNS.L)
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