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The Expert View: Rio Tinto, Redrow and Playtech

Our daily roundup of analyst commentary on shares, also including Hargreaves Lansdown and DCC.

by Michelle McGagh on Feb 08, 2018 at 05:00

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Key stats
Market capitalisation£68,600m
No. of shares out1,763m
No. of shares floating1,146m
No. of common shareholdersnot stated
No. of employees51018
Trading volume (10 day avg.)4m
Turnover24,204m USD
Profit before tax9,844m USD
Earnings per share1.83 USD
Cashflow per share3.79 USD
Cash per share3.40 USD

Rio Tinto in rude health, says Hargreaves

Low-cost small mines owned by Rio Tinto (RIO) are a ‘licence to print money’ and the cash machine has been switched on, says Hargreaves Lansdown.

The mining giant has reported a 69% profit jump in 2017 to $8.6 billion (£6.2 billion) alongside a $1 billion share buyback. Analyst Nicholas Hyett said the ‘Rio cash machine is rolling’.

‘Many of Rio’s vast, super low cost mines were profitable even in the darkest days of the commodity rout. In these happier times they’re a licence to print money,’ he said.

‘That cash infusion means the company is back in rude health…but a miner’s success or failure is largely down to commodity prices over which it has no control. High quality assets and far healthier balance sheet mean Rio is well paced to weather even the worst conditions in the long term – but investors shouldn’t think it’s escaped the commodity rollercoaster.’

The shares rose 23p to £38.68 yesterday.

Key stats
Market capitalisation£2,303m
No. of shares out370m
No. of shares floating237m
No. of common shareholdersnot stated
No. of employees2130
Trading volume (10 day avg.)1m
Profit before tax£324m
Earnings per share69.70p
Cashflow per share70.25p
Cash per share16.77p

Numis upgrades Redrow after share price fall

Numis has upgraded Redrow (RDW) after the recent share price fall at the housebuilder.

Analyst Chris Millington upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 729p on the stock after first-half results that were slightly stronger than expected. The shares were up 5.4% at 625.5p yesterday.

‘The results highlight that Redrow’s past investment in land…rather than returning large amounts of capital to shareholders – is feeding through to strong levels of volume and profit growth,’ he said.

‘Sales so far in 2018 are in line with the strong comparative last year, and this, alongside the strong order book, give us confidence in the outturn for the full year. While we have left our target price unchanged, given the recent fall in the share price, we move from “add” to “buy”.’

Key stats
Market capitalisation£2,437m
No. of shares out317m
No. of shares floating288m
No. of common shareholdersnot stated
No. of employees5254
Trading volume (10 day avg.)1m
Turnover628m EUR
Profit before tax262m EUR
Earnings per share0.49 EUR
Cashflow per share0.74 EUR
Cash per share1.52 EUR

Playtech is controversial but cheap, says Barclays

Gaming software developer Playtech (PTEC) is facing regulatory uncertainty but Barclays believes it is a company of ‘strategic importance’ to its industry.

Analyst James Goodman initiated coverage of the stock with an ‘equal weight’ recommendation and a target price of 806p on the shares, which edged 6p higher to 769.6p yesterday.

‘Playtech is a controversial stock with significant regulatory uncertainty in its China exposure and negative estimate momentum following its November profit warning,’ he said.

‘However, it also holds a position of strategic importance in the industry, has control over leading game content, is growing a very credible live casino offering, and generates significant value through mergers and acquisitions.’

Goodman added that at 11x 2018 earnings per share it is ‘one of the cheapest stocks in the industry’ although he expects the regulatory uncertainty to remain a cap on valuation.

Key stats
Market capitalisation£8,334m
No. of shares out474m
No. of shares floating260m
No. of common shareholdersnot stated
No. of employees1043
Trading volume (10 day avg.)1m
Profit before tax£265m
Earnings per share44.57p
Cashflow per share45.92p
Cash per share54.82p

No value in Hargreaves shares, says Jefferies

Hargreaves Lansdown (HRGV) is a well-run company but it has ‘run out of value’ at the moment, according to Jefferies.

Analyst Phil Dobbin retained his ‘underperform’ recommendation but increased the target price from £15.37 to £15.49 after first-half results that reported a growth in client numbers and assets with a ‘stable’ revenue margin. The shares were up 11p at £17.63 yesterday.

‘Hargreaves Lansdown reported a strong first-half, benefitting from both strong client growth and assets under administration helped by positive investment market and competitor woes,’ he said.

‘Our earnings per share forecasts for 2018 increases 3.5%, with recent market moves rolling back strong second quarter market moves. Our price target remains relatively unchanged at £15.49, as well as our view that Hargreaves Lansdown is a well-run company that has currently run out of value.’

Key stats
Market capitalisation£6,327m
No. of shares out89m
No. of shares floating86m
No. of common shareholdersnot stated
No. of employees9750
Trading volume (10 day avg.)m
Profit before tax£426m
Earnings per share225.03p
Cashflow per share364.82p
Cash per share1,180.04p

US opportunities afoot at DCC, says Peel Hunt

The health arm of support services business DCC (DCC) has made its first US acquisition, opening up ‘significant’ opportunities, says Peel Hunt.

Analyst Christopher Bamberry retained his ‘add’ recommendation and target price of £81.49 on the stock after DCC Health and Beauty Solutions acquired Elite, a provider of contract manufacturing services to the US healthcare and dietary supplements market for $50 million (£36 million).

‘Entry to the world’s largest healthcare market offers DCC significant opportunities for organic and acquisitive growth,’ he said.

‘The US is a high-growth market, with a fragmented contract manufacturing base.’

Bamberry added that the shares traded on 19x 2018 earnings per share, a 32% premium to the FTSE All-Share. The shares rose 1% to £70.75 yesterday.

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  • Rio Tinto PLC (RIO.L)
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  • Redrow PLC (RDW.L)
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  • Playtech PLC (PTEC.L)
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  • Hargreaves Lansdown PLC (HRGV.L)
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