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The Expert View: SSE, BHP Billiton and Majestic Wine

Our daily roundup of analyst commentary on shares, also including Severfield and PureTech.

by Michelle McGagh on Apr 12, 2017 at 05:00

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Key stats
Market capitalisation£15,071m
No. of shares out1,008m
No. of shares floating1,002m
No. of common shareholdersnot stated
No. of employees21118
Trading volume (10 day avg.)3m
Profit before tax£461m
Earnings per share46.01p
Cashflow per share126.28p
Cash per share35.75p

Berenberg upgrades SSE

Berenberg has upgraded energy provider SSE (SSE), which it believes can continue paying a sector-topping yield of 6.5%.

Analyst Andrew Fisher upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from £15.50 to £16.50 on the stock, which was trading flat at £14.81 at the time of writing.

‘To be convinced of a “buy” case for SSE, investors have to believe that the group’s sector-topping 6.5% yield and promise of retail price index-linked dividend growth is sustainable; that debt ratios are manageable and will reduce; that political risk in the UK is overplayed; and that the risk to power prices in the UK wholesale market is skewed to the upside,’ he said.

‘We believe all four.’

He added that the tight reserve margin and drop-off in capacity investment within UK energy ‘could remain a potentially inflationary feature of the UK power market for some time’ and therefore ‘we assume a moderate rise in UK power prices’.

Key stats
Market capitalisation£69,578m
No. of shares out5,322m
No. of shares floating2,102m
No. of common shareholdersnot stated
No. of employees26827
Trading volume (10 day avg.)9m
Turnover24,986m USD
Profit before tax-5,161m USD
Earnings per share-0.97 USD
Cashflow per share0.37 USD
Cash per share1.59 USD

Elliott’s call for BHP restructure ‘short-termist’, says Shore Capital

Shore Capital has criticised activist investor Elliott Advisor’s restructuring proposal for miner BHP Billiton (BLT) as short-termist.

Analyst Yuen Low does not have a target price or recommendation on the stock, which was trading at £13.23 at the time of writing, up 3% since Elliott’s intervention.

BHP has rebuffed Elliott’s restructuring plans, stating that cost and associated risks would ‘significantly outweigh any potential benefits’.

‘We find ourselves coming down on BHP’s side of the argument,’ said Low.

‘Call us cynical, but we think that Elliott’s proposals are short-termist and for its own benefit. If Elliott gets its way and BHP’s share price rises as a result, we would not be surprised to see its 4.1% interest disposed of in short order, leaving the company and other shareholders to pick up the pieces.’

Key stats
Market capitalisation£267m
No. of shares out71m
No. of shares floating49m
No. of common shareholdersnot stated
No. of employees1454
Trading volume (10 day avg.)m
Profit before tax£2m
Earnings per share3.34p
Cashflow per share19.05p
Cash per share10.97p

MD out but Majestic isn’t down, says Liberum

The departure of Majestic Wine (WINEW) managing director John Colley is not a step back as he leaves the wine merchants in a stronger position, says Liberum.

Analyst Wayne Brown retained his ‘buy’ recommendation and target price of 380p on the stock, which was trading 2.9% higher at 372.1p at the time of writing.

‘The departure of John a disappointment but one should not see this as a strategic step back,’ he said.

‘Colley has put in place systems, processes and a team in the retail business that had not previously existed. The heavy lifting has been done and the business is in a much stronger position.’

He added that sales growth had returned and it was now time to improve the customer base and shops, which plays to the new managing director Rowan Gormley’s skill set.

Key stats
Market capitalisation£55m
No. of shares out48m
No. of shares floating27m
No. of common shareholdersnot stated
No. of employees155
Trading volume (10 day avg.)m
Profit before tax£1m
Earnings per share1.69p
Cashflow per share5.26p
Cash per share2.98p

PureTech has blockbuster potential, says Jefferies

PureTech Health (PRTC) is expanding its reach in immunology which could have ‘blockbuster potential’, according to Jefferies.

Analyst Peter Welford reiterated his ‘buy’ recommendation and target price of 255p on the stock on the back of the company’s new initiative Nybo, which is looking to build on technology from the New York University School of Medicine to create new immunology treatments.

‘This new subsidiary further expands the portfolio of opportunities in immunology, all of which “blue sky” could have blockbuster potential,’ he said.

‘The shares currently trade at a 40% discount to aggregate portfolio value plus cash, before ascribing to earlier stage businesses.’

Welford said that given the recent problems at Allied Minds ‘we highlight PureTech’s focus on truly big prize markets, validation from third parties and pharma majors, plus near-term milestones all at more than 40% discount’.

Key stats
Market capitalisation£248m
No. of shares out299m
No. of shares floating292m
No. of common shareholdersnot stated
No. of employees1302
Trading volume (10 day avg.)m
Profit before tax£9m
Earnings per share2.87p
Cashflow per share5.03p
Cash per share6.40p

Severfield building towards growth target, says Peel Hunt

Structural steel specialist Severfield (SFR) is moving up the stepping stones towards achieving its growth targets, says Peel Hunt.

Analyst Harry Philips reiterated his ‘buy’ recommendation and increased the target price from 85p to 90p following a strong second half that means full-year results are expected to be ahead of expectations. The shares were trading flat at 83p at the time of writing.

‘Encouragingly, this performance has been matched in cashflow, with net funds at the year end similarly ahead of expectations,’ said Philips.

‘Less positive was the news that chief executive Ian Lawson has taken a temporary leave of absence due to physical ill health…[we] are confident that the remaining team will continue the excellent progress towards the June 2016 target of doubling 2016 pre-tax profit of £13.2 million within four years.’

He said the targets ‘are simply not reflected in a 2018 price/earnings multiple of 13.6x’.

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  • BHP Billiton PLC (BLT.L)
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  • Majestic Wine PLC (WINEW.L)
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  • Severfield PLC (SFR.L)
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  • PureTech Health PLC (PRTC.L)
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