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The Expert View: Ocado, Fever-Tree and Royal Mail

Our daily roundup of analyst commentary on shares, also including Experian and Rentokil.

by Michelle McGagh on May 18, 2018 at 05:00

If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.
Key stats
Market capitalisation£4,967m
No. of shares out664m
No. of shares floating455m
No. of common shareholdersnot stated
No. of employees12799
Trading volume (10 day avg.)2m
Profit before tax£85m
Earnings per share0.16p
Cashflow per share11.53p
Cash per share24.54p

Hargreaves: Ocado deal pokes hedge funds in the eye

Online supermarket Ocado (OCDO) has signed a deal with US supermarket giant Kroger, poking the hedge funds who bet against it in the eye, says Hargreaves Lansdown.

Shares in Ocado surged 42% to 785.4p yesterday on news of the deal, which follows tie-ups with supermarkets in Canada, France and Sweden struck over the last six months.

Analyst Laith Khalaf said the company was making strides and ‘inflicting serious financial pain on those who have bet against it’.

As one of the most shorted stocks in the UK stock market, ‘this deal will be a poke in the eye for the hedge funds who have bet against Ocado because of its eye-watering valuation’, he said.

‘Its share price is looking forward to future earnings based on licensing out its online delivery technology, rather than the revenues its currently making from food retail. The short sellers were hoping Ocado wouldn’t deliver on its international expansion plans, that position now looks like a badly busted flush.’

Key stats
Market capitalisation£3,173m
No. of shares out116m
No. of shares floating96m
No. of common shareholdersnot stated
No. of employees51
Trading volume (10 day avg.)m
Profit before tax£58m
Earnings per share39.15p
Cashflow per share40.12p
Cash per share49.57p

Jefferies: Fever-Tree at forefront of disruption

Consumers’ desire for ‘better not more’ when it comes to boozing will continue to be a boon for premium mixer maker Fever-Tree (FEVR), says Jefferies.

Analyst Edward Mundy retained his ‘buy’ recommendation and target price of £30 on the stock after the company reported ‘further positive progress’ in the first four months of the year. The shares slumped 6.4% to £27.39 yesterday.

‘The structural drivers of premiumisation in spirits remain strong: consumers are seeking to drink “better not more” and prepared to pay a premium for high-quality brands,’ said Mundy.

‘We believe Fever-Tree offers a leveraged play on this trend and a better way to participate than the spirit majors. With premium mixers accounting for only c.9% of the global category, we believe the mixers category remains ripe for mass disruption.’

Key stats
Market capitalisation£5,625m
No. of shares out1,000m
No. of shares floating996m
No. of common shareholdersnot stated
No. of employees158955
Trading volume (10 day avg.)5m
Profit before tax£1,013m
Earnings per share27.29p
Cashflow per share58.70p
Cash per share29.90p

Bigger push needed at Royal Mail, says Liberum

Royal Mail (RMG) management is pushing for more productivity but Liberum believes more is needed to stop it missing target like last year.

Analyst Gerald Khoo retained his ‘sell’ recommendation with a target price of 450p on the shares, which fell 6.1% to 561.4p yesterday.

Full-year results were at the top end of the range, driven by better-than-expected performance in the parcels division and strong growth in its logistics arm.

‘A mixed outlook has uncertain implications for consensus estimates,’ said Khoo. ‘Management expects parcels volume and revenue growth to at least match the previous year, but there is clear caution on letters, where the volume decline is seen at the worse end of the long-term range, with downside risk if business uncertainty persists.’

He added that although ‘management is aiming at the upper end of its productivity improvement range’ after missing last year ‘we believe more is needed’.

Key stats
Market capitalisation£16,567m
No. of shares out918m
No. of shares floating912m
No. of common shareholdersnot stated
No. of employees16000
Trading volume (10 day avg.)2m
Turnover3,215m USD
Profit before tax1,145m USD
Earnings per share0.64 USD
Cashflow per share0.99 USD
Cash per share0.07 USD

Shore hails ‘highly strategic’ Experian

Credit score company Experian (EXPN) is making changes to its division and Shore Capital says the company remains a ‘highly strategic’ investment.

Analyst Robin Speakman retained his ‘buy’ recommendation on the stock after a strong set of full-year results and a commitment to an extension of its share buyback programme.

He said guidance for the current year ‘appears more or less unchanged’ as North America was ‘back in in growth’ and the UK and Ireland business improving.

‘Experian is moving to a new reporting structure of just two divisions: business-to-business, which will dominate, consolidating the existing credit, analytics, and marketing services, and consumer services,’ he said.

‘Experian remains a highly strategic investment in data services for us.’ The shares jumped 5.5% to £18.04 yesterday.

Key stats
Market capitalisation£5,987m
No. of shares out1,843m
No. of shares floating1,817m
No. of common shareholdersnot stated
No. of employees36036
Trading volume (10 day avg.)5m
Profit before tax£507m
Earnings per share36.56p
Cashflow per share47.30p
Cash per share16.91p

Numis downgrades Rentokil on valuations

Numis has downgraded Rentokil (RTO) despite long-term attractions as shares in the pest control business have ‘run hard’ since March.

Analyst James Beard downgraded his recommendation from ‘add’ to ‘hold’ with a target price of 315p.

That followed an ‘impressive’ capital markets day which ‘reiterated the long-term structural growth attractions of the equity story and the value compounding nature of the group’s strategy’.

‘We view the stock as a core long-term holding due to the growth drivers and relative lack of cyclicality,’ he said. ‘However, with the shares having run hard since [March], now trading on 25.4x 2018 price/earnings we move to “hold” on valuation grounds,’ he said.

‘Given lower organic growth in the first quarter due to weather disruption and a tough comparison in the second, we believe there may be a more attractive entry point in the coming months.’

The shares rose 1.6% to 324.8p yesterday.

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  • Experian PLC (EXPN.L)
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  • Fevertree Drinks PLC (FEVR.L)
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  • Ocado Group PLC (OCDO.L)
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  • Rentokil Initial PLC (RTO.L)
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  • Royal Mail PLC (RMG.L)
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