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The Expert View: Wolseley, Marshalls and Babcock

Our daily roundup of analyst commentary on shares, also including Cobham and Brooks Macdonald.

by Michelle McGagh on Mar 16, 2017 at 05:01

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Key stats
Market capitalisation£13,666m
No. of shares out267m
No. of shares floating264m
No. of common shareholdersnot stated
No. of employees39995
Trading volume (10 day avg.)1m
Turnover£13,154m
Profit before tax£293m
Earnings per share108.83p
Cashflow per share172.35p
Cash per share127.68p

Barclays: Wolseley valuation is attractive

An improved US outlook means plumbing specialists Wolseley (WOS) can deliver market gains over a number of years, predicts Barclays.

Analyst Paul Checketts reiterated his ‘overweight’ recommendation and lifted his share price target to £56 from £50. The stock responded with a 2% gain to close £1.03 up at £51.48 on Wednesday.

‘We are raising our target price…11% above the current level, and reiterating it as our top pick in the sector,’ he said.

‘We believe the short-term outlook in the US has improved, the drag from weakness in the industrial segment and input cost deflation will now reduce, and the company’ strategy will deliver market share gains over a multi-year period.’

Checketts predicted ‘high single-digit’ earnings per share growth to 2019 and that ‘a valuation of 16x 2017 estimated price/earnings for this level of growth, with bolt-on M&A and capital returns on top, is attractive’.

Key stats
Market capitalisation£690m
No. of shares out199m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees2292
Trading volume (10 day avg.)m
Turnover£386m
Profit before tax£28m
Earnings per share14.10p
Cashflow per share21.17p
Cash per share12.53p

Marshalls premium is worth it, says Numis

Numis has increased its estimates for Marshalls (MSLH) after full-year results for the landscaping materials company beat expectations and showed a good start to 2017.

Analyst Chris Millington retained his ‘add’ recommendation and share price target price of 365p as the stock shot up 7.5%, or 24p, yesterday to 340p.

‘Marshalls’ full year results are c.5% ahead of our forecasts, with the group ending the year strongly. Management points to a strong start to 2017, and to reflect this and the benefit of strategic initiatives, we have increased 2017 estimates by 3% and think that the risk to forecasts remains on the upside,’ he said.

He added that based on the new 2018 estimates the shares were trading on ’14.8x price/earnings and a 3.4% yield – which has the potential to be boosted by supplemental dividends’.

‘While this is a premium to the wider materials sector, we think this is justified based on the strength of the balance sheet, historic and prospective profit growth rates and upgrade potential,’ said Millington.

Key stats
Market capitalisation£4,643m
No. of shares out506m
No. of shares floating499m
No. of common shareholdersnot stated
No. of employees35050
Trading volume (10 day avg.)2m
Turnover£4,158m
Profit before tax£287m
Earnings per share56.84p
Cashflow per share97.75p
Cash per share36.87p

Liberum upgrades Babcock on ‘compelling’ valuation

Liberum has upgraded engineering support services company Babcock (BAB) as it believes the valuation is now ‘compelling’.

Analyst Joe Brent upgraded his recommendation from ‘hold’ to ‘buy’ with a share price target of 960p. The stock responded with a 16p gain yesterday to close 1.8% higher at nearly 910p.

‘Issues around earnings quality, Ministry of Defence pressures, pension, [helicopter firm] Avincis, and oil and gas exposure are now well understood,’ he said.

‘Less known, organic sales growth and free cashflow should improve in full-year 2018.’

He added that defence spending was increasing and there was scope to internationalise the business.

Key stats
Market capitalisation£2,202m
No. of shares out1,708m
No. of shares floating1,687m
No. of common shareholdersnot stated
No. of employees12527
Trading volume (10 day avg.)15m
Turnover£1,944m
Profit before tax£-795m
Earnings per share-52.79p
Cashflow per share-36.36p
Cash per share13.83p

Cobham a repair job, says Jefferies

Cobham (COB) may have suffered profit warnings at the back end of 2016 but the defence and aerospace contractor is a ‘repair job’ not a ‘turnaround story’, says Jefferies.

Analyst Sandy Morris retained his ‘buy’ recommendation on the stock but reduced his target price from 180p to 150p after the company gave guidance for full-year 2017.

The shares edged 0.1% lower to close at 129p on Wednesday.

‘With Cobham’s guidance for full-year 2017 trading profit and free cashflow cautious, and not very specific, we have had to trust to our judgment and analysis more so than normal,’ he said.

Morris said the risks ‘were evidence’ but that ‘Cobham is not really a complex turnaround story, but a simpler repair job’.

He added that he ‘generally does not like turnaround stories’ as ‘end markets and competitor actions are hard to predict and timing is uncertain’, however, Cobham can be taken ‘some way’ with some repairs.

Key stats
Market capitalisation£276m
No. of shares out14m
No. of shares floating11m
No. of common shareholdersnot stated
No. of employees472
Trading volume (10 day avg.)m
Turnover£81m
Profit before tax£13m
Earnings per share94.07p
Cashflow per share120.98p
Cash per share149.37p

Brooks Macdonald: room for more distributions, says Peel Hunt

Growth in assets under management at wealth manager Brooks Macdonald (BRK) has lifted the dividend and the group is continuing to build distribution, says Peel Hunt.

Analyst Stuart Duncan retained his ‘add’ recommendation and target price of £21 following its half-year results. The stock added 4.5p yesterday to close at £20.

‘Brooks has delivered results slightly ahead of our expectations on the back of good assets under management growth,’ he said.

‘In turn, this has led to a 25% increase in the dividend. Looking ahead, the group continues to build distribution capability, including a first strategic alliance internationally, supporting future organic growth.’

He added that the investment case for Brooks was predicated on outperforming the sector in terms of asset growth but there was ‘continuing evidence’ of it doing so.

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  • Wolseley PLC (WOS.L)
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  • Brooks Macdonald Group PLC (BRK.L)
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  • Marshalls PLC (MSLH.L)
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  • Babcock International Group PLC (BAB.L)
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  • Cobham PLC (COB.L)
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