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The Expert View: Paddy Power Betfair, Standard Life and SIG

Our daily roundup of analyst commentary on shares, also including InterContinental Hotels and TP ICAP.

by Michelle McGagh on Aug 09, 2017 at 05:00

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Shore Capital not betting on Paddy Power

Value hunters may be drawn to bookmaker Paddy Power Betfair (PPB) after a heavy share price fall over the last two days but Shore Capital is concerned about the impact of a slowdown in Europe and its high valuation relative to peers.

The shares are down 8.5% over the last two days after the bookmaker followed Monday’s announcement boss Breon Corcoran was leaving by reporting a 6% fall in revenues in the second quarter.

Analyst Greg Johnson retained his ‘hold’ recommendation on the stock.

‘Paddy Power trades on 20 times current year earnings and an enterprise value/earnings [ratio] approaching 14 times,’ said Johnson.

‘Although this is arguably towards the bottom end of Paddy Power’s trading range since the financial crisis, we remain concerned with the slowdown in its key European online division especially given the premium valuation relative to peers.’

Key stats
Market capitalisation£8,919m
No. of shares out1,980m
No. of shares floating1,968m
No. of common shareholdersnot stated
No. of employees6302
Trading volume (10 day avg.)6m
Profit before tax£368m
Earnings per share18.61p
Cashflow per share25.13p
Cash per share401.14p

Standard Life profits jump ‘sideshow’ as merger approaches

First half results from Standard Life (SL) have to be taken in two parts, according to Hargreaves Lansdown, which notes despite the improved profits the flagship Global Absolute Return Strategies (Gars) fund is still struggling.

The insurance giant reported a 6% increased first-half operating profit before tax of £362 million and an 8.2% hike to the interim dividend to 7p. The shares were trading flat at 443.5p yesterday.

Analyst Nicholas Hyett said there were ‘two sides’ to the numbers.

‘On the one hand, profits and dividends have delivered a meaningful improvement. On the other, Standard Life continues to struggle with outflows from the flagship Gars fund, with knock-on effects on margins,’ he said.

However, he added that the results were ‘something of sideshow’ considering Standard Life’s merger with Aberdeen Asset Management completes on Monday and ‘a couple of basis point declines in margin here and there will be overshadowed by £200 million in cost savings’.

‘That being said, the strong performance of the retail and workplace businesses will be welcomed by investors at both companies, since combining the groups’ complementary distribution networks was a key part of the deal’s rationale.’

Key stats
Market capitalisation£979m
No. of shares out591m
No. of shares floating549m
No. of common shareholdersnot stated
No. of employees10315
Trading volume (10 day avg.)2m
Profit before tax£-119m
Earnings per share-20.14p
Cashflow per share-13.33p
Cash per share21.76p

Jefferies: SIG turnaround underway

The turnaround is underway at specialist building material company SIG (SHI) and although markets reacted badly to the interim results, Jefferies believes the business is being stabilised.

Analyst Sam Cullen retained his ‘hold’ recommendation and target price of 150p on the shares, which fell 2% to 167p yesterday.

He said the interims were ‘in-line’ as the UK insulation business returned to profitability, adding a stronger second half was expected. However, offsite construction is expected to continue experiencing ‘production challenges’.

‘As one might expect for a business in the midst of a turnaround, [the interims have] a few moving parts,’ said Cullen.

‘However, the underlying message is clear – the business is being stabilised and expectations for the full year are unchanged.’

Key stats
Market capitalisation£8,048m
No. of shares out190m
No. of shares floating175m
No. of common shareholdersnot stated
No. of employees6587
Trading volume (10 day avg.)1m
Turnover1,316m USD
Profit before tax318m USD
Earnings per share1.55 USD
Cashflow per share1.92 USD
Cash per share0.92 USD

InterContinental Hotels at the mercy of ‘hotel cycle’, says Numis

Half year results from InterContinental Hotels (IHG) shows the new chief executive’s strategy is working but the ‘hotel cycle’ will determine its earnings in the medium term, says Numis.

Analyst Tim Barrett retained his ‘hold’ recommendation and target price of £42.00 on the stock after half-year results came in ahead on profits but revenue per available room slowed. The shares fell 3.9% to £42.36 yesterday.

‘New chief executive Keith Barr recently took over from Richard Solomons; his first comments on priorities/strategy include the aim to accelerate growth by increasing the resources dedicated to the highest opportunity markets and segments,’ said Barrett.

‘In our view, Intercontinental Hotels’ strategy is appropriate and already being well executed, but realistically, the hotel cycle will be the biggest determinant of earnings in the short to medium term.’

Key stats
Market capitalisation£2,682m
No. of shares out554m
No. of shares floating546m
No. of common shareholdersnot stated
No. of employees2704
Trading volume (10 day avg.)1m
Profit before tax£43m
Earnings per share17.18p
Cashflow per share22.87p
Cash per share249.45p

Peel Hunt downgrades TP ICAP

Peel Hunt has downgraded interdealer broker TP ICAP (TCAP) after interims came in below expectations and the share price continues to run ahead of target.

Analyst Stuart Duncan downgraded his recommendation from ‘hold’ to ‘reduce’ with a target price of 435p after the first set of interims from the combined Tullett Prebon-ICAP group after last year’s merger.

Duncan said the results were ‘marginally below’ consensus and ‘the figures were characterised by a relatively dull trading backdrop and the balance between investing in the business and realising the integration benefits’.

‘The stock is valued at around 14x 2017 forecasts, with a yield of 3.5%, falling to 11.6x December 2018 estimates,’ he said.

‘December 2018 is the first year which gives a better sense of the potential of the group, reflecting c.£80 million of the potential cost synergies expected after the merger. Our view is that this multiple reflects much of the upside, yet little of the risks that revenues remain under pressure from benign market conditions. With the share price running ahead of our…target price, we downgrade.’The shares rose 1.3% to 496.8p yesterday.

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  • Paddy Power Betfair PLC (PPB.L)
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  • Standard Life Equity Income Trust PLC (SLET.L)
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  • InterContinental Hotels Group PLC (IHG.L)
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