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The Expert View: Shell, Ocado and SIG

Our daily roundup of analyst commentary on shares, also including ITE and Topps Tiles.

by Michelle McGagh on Nov 28, 2017 at 17:50

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Key stats
Market capitalisation£202,288m
No. of shares out8,261m
No. of shares floating8,250m
No. of common shareholdersnot stated
No. of employees92000
Trading volume (10 day avg.)9m
Turnover196,361m USD
Profit before tax21,898m USD
Earnings per share0.49 USD
Cashflow per share2.97 USD
Cash per share1.94 USD

Shell delivers early Christmas present by scrapping scrip

Royal Dutch Shell (RDSb) shareholders have been given an early Christmas present as the oil giant scraps its scrip but Hargreaves Lansdown said it won’t all be plain sailing next year.

The company announced the scrapping of its scrip dividend programme, under which some dividends were paid out as shares, for the fourth quarter and said it would begin a share buyback. It also announced a new carbon footprint goal for its energy products. The shares jumped 4% to £24.55 yesterday on the news.

Analyst Nicholas Hyett said the scrip news was ‘an early Christmas present for Shell shareholders’.

‘Improved cash generation has allowed the group to scrap the scrip dividend, with the debt position improving steadily as well. The extra shares issued under the scrip are set to be swept back up by a $25 billion (£19 billion) share buyback over the next three years,’ he said.

‘It’s not all plain sailing though. The ambitious targets for a lower carbon footprint from its energy products reflects an increasingly carbon-conscious market, that’s also reflected in the group’s ongoing investment in new energies, which is set to step up from here.’

Key stats
Market capitalisation£1,950m
No. of shares out631m
No. of shares floating419m
No. of common shareholdersnot stated
No. of employees10930
Trading volume (10 day avg.)3m
Profit before tax£84m
Earnings per share1.96p
Cashflow per share11.90p
Cash per share7.70p

Numis predicts more deals for Ocado after Monoprix tie-up

Online grocery delivery service Ocado (OCDO) has signed a deal with French supermarket Monoprix in what Numis expects to be the first of ‘multiple deals’ over coming years.

Analyst Andrew Wade retained his ‘buy’ recommendation and target price of 400p on the stock after it announced the signing of an agreement with Groupe Casino and its urban brand Monoprix to develop the Ocado ‘smart platform’ in France, servicing the greater Paris area.

The shares jumped 20.5% to 308.6p yesterday on the news.

‘We see this deal as both significant in its own right, and a huge endorsement of the Ocado smart platform model and intellectual property,’ he said. ‘We continue to believe that Ocado is developing the most advanced and economic end-to-end platform for third-party retailers, a view validated by this deal, and expect it to sign multiple deals in the coming years.’

Key stats
Market capitalisation£1,020m
No. of shares out592m
No. of shares floating549m
No. of common shareholdersnot stated
No. of employees10315
Trading volume (10 day avg.)4m
Profit before tax£131m
Earnings per share-20.14p
Cashflow per share-13.33p
Cash per share21.76p

Jefferies upgraded SIG on turnaround plan

Jefferies has upgraded SIG (SHI) on the back of what it sees as a ‘credible turnaround strategy’ at the insulation group.

Analyst Sam Cullen upgraded his recommendation from ‘hold’ to ‘buy’ and increased his target price from 150p to 200p on the stock. The shares were up 6.4% at 175p yesterday.

‘The recent strategy day mapped out a credible turnaround strategy,’ he said. ‘The road will not be straight, but we expect management to fully deliver on their 5% margin targets in the medium term. Much of the turnaround lies within the group’s control and is not predicated on rapid recovery in the group’s end markets.’

He said the market expectations were ‘reasonable’ and limited growth of 2-3% a year was anticipated.

‘We expect continued focus on cost reduction and potential non-core disposals to drive profitability improvements in the short term, with gross margin enhancements being back-end loaded. We take comfort from management’s obvious focus,’ said Cullen.

Key stats
Market capitalisation£478m
No. of shares out269m
No. of shares floating264m
No. of common shareholdersnot stated
No. of employees1340
Trading volume (10 day avg.)m
Profit before tax£35m
Earnings per share-3.65p
Cashflow per share3.92p
Cash per share5.92p

ITE improving but costs are a concern, says Peel Hunt

A new management at ITE (ITE) has marked a turnaround at the trade conference organiser but an improved performance may be hampered by increased costs, says Peel Hunt.

Analyst Malcolm Morgan retained his ‘hold’ recommendation and increased the target price from 155p to 160p after the company reported its first annual like-for-like revenue rise in four years.

The shares fell 2.8% to 174p yesterday.

‘The new management team and the transformation and growth programme process has had a welcome and impressive impact on the top line. Underlying growth excluding launches and closures is measured at 5%,’ he said.

‘This turnaround reflects material changes to the sale process. However, these changes come at a price – both ongoing as reflected in gross margin of under 39% and exceptional cash cost.’

Morgan said the top line ‘should accelerate’ in 2018 but that ‘does not yet convert into more profit’.

Key stats
Market capitalisation£126m
No. of shares out192m
No. of shares floating160m
No. of common shareholdersnot stated
No. of employees1977
Trading volume (10 day avg.)m
Profit before tax£27m
Earnings per share7.82p
Cashflow per share10.75p
Cash per share5.21p

Topps Tiles attractive after share price drop, says Liberum

Topps Tiles (TPT) has reported a drop in revenue and profits in its full year results but Liberum says investors ‘should take confidence’ from improved trading that bodes well for next year.

Analyst Adam Tomlinson retained his ‘buy’ recommendation and target price of 100p on the stock after revenue fell to £211.8 million from £215 million in 2016. Pre-tax profit was down from £20 million in 2016 to £17 million. The shares jumped 7% to 65p yesterday.

‘The full-year 2017 results are as expected but investors should take confidence from much improved current trading, which sets a positive tone moving into 2018,’ he said.

‘At this early stage, we prudently leave our profit and loss forecasts unchanged, although there is good upside risk if momentum continues. Working capital initiatives lead us to lower our net debt estimates. The strategy remains appropriate and good progress is being made to drive long-term growth. The recent share price fall continues to offer an attractive buying opportunity.’

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  • Royal Dutch Shell PLC (RDSb.L)
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  • Ocado Group PLC (OCDO.L)
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  • ITE Group PLC (ITE.L)
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  • Topps Tiles PLC (TPT.L)
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