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The Expert View: CYBG, Experian and Diploma

Our daily roundup of analyst commentary on shares, also including Mears and SafeCharge.

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Key stats
Dividend yield 0.4%
Market capitalisation £3,603m
No. of shares out 1,427m
No. of shares floating 1,204m
No. of employees 6,040
Trading volume (10 day avg.) 5.2m
Turnover £1,075m
Profit before tax £527m
Earnings per share 17.31p
Cashflow per share 30.43p
Cash per share 1,090.42p

Shore Capital: potential upside at CYBG

Shore Capital is holding out for full year results from CYBG (CYBG) after the challenger bank announced the resignation of chief operating officer Debbie Crosby.

Analyst Gary Greenwood retained his ‘hold’ recommendation on the shares, which fell 2.4% to 248.4p yesterday.

Crosby’s resignation came on the eve of the group’s first full-year results since CYBG completed its takeover of Virgin Money.

Greenwood said it was ‘perhaps not surprising to see such change following a high profile takeover’.

‘CYBG’s shares have come under significant pressure since the deal with Virgin Money was completed and now offer 35% upside to our last published fair value of 345p,’ he said. 

‘However, we will wait until the full-year results announcement is released before deciding whether a more positive stance is appropriate.’

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Key stats
Dividend yield 1.9%
Market capitalisation £16,845m
No. of shares out 910m
No. of shares floating 904m
No. of employees 16,500
Trading volume (10 day avg.) 2.2m
Turnover 3,650m USD
Profit before tax 1,260m USD
Earnings per share 0.62 USD
Cashflow per share 0.99 USD
Cash per share 0.14 USD

Experian: mixed feelings from Jefferies

There is a ‘long runway’ for growth at credit scoring company Experian (EXPN) but margin projections still look ambitious considering the investment that is planned, says Jefferies.

Analyst Kean Marden retained his ‘hold’ recommendation and increased the target price from £17.20 to £17.30. The shares fell 1.8% to £18.45 yesterday.

‘Experian’s appealing blend of cyclical, regulatory, and self-help drivers provide a long runway for growth,’ he said.

‘However, we think reinvestment will persist and consequently consensus full-year 2021 margin projections look ambitious. The shares trade close to all-time high valuation multiples, due to share price appreciation and a steady decline in consensus 2019 earnings per share estimates over two years.’

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Key stats
Dividend yield 1.8%
Market capitalisation £1,528m
No. of shares out 113m
No. of shares floating 111m
No. of employees 1,700
Trading volume (10 day avg.) 0.2m
Turnover £452m
Profit before tax £84m
Earnings per share 41.99p
Cashflow per share 55.86p
Cash per share 19.69p

Diploma proving itself best in class, says Peel Hunt

Industrial machinery group Diploma (DPLM) has proved itself to be ‘best in class’ even when looking for a new chief executive, says Peel Hunt.

Analyst Henry Carver reiterated his ‘add’ recommendation and target price of £14.00 on the stock after full-year revenue was up 7% and the board said it was confident of ‘further progress’ next year. The shares rose 4.2% to £13.49 yesterday.

‘Diploma is a best-in-class distributor and delivery of these results at a time when the board has been looking for a new chief executive demonstrates the quality of the businesses and their management teams,’ he said.

Carver said current trading ‘looks OK’ but if there was a wider economic slowdown ‘then that can often be a catalyst for mergers and acquisitions, which keeps the earnings per share growth going’.

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Key stats
Dividend yield 3.3%
Market capitalisation £343m
No. of shares out 104m
No. of shares floating 102m
No. of employees 11,636
Trading volume (10 day avg.) 0m
Turnover £900m
Profit before tax £46m
Earnings per share 20.10p
Cashflow per share 39.45p
Cash per share 23.92p

Mears-Mitie deal is ‘sensible’, says Liberum

Social housing provider Mears (MER) has bought £35 million of assets from Mitie’s property management division, in what Liberum calls a ‘strategically sensible deal’.

Analyst Joe Brent retained his ‘buy’ recommendation on Mears and his 450p target price on the shares, which fell 8.7% to 336p yesterday.

Brent said it was a ‘strategically sensible deal and both balance sheets are strengthened’.

However, a £3.5 million loss on the acquisition is expected due to ‘mobilisation costs’ this year.

‘Mears will target £7 million of synergies,’ he said. ‘The acquisitions will add c.£200 million to the order book and c.£800 million to the pipeline.’

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Key stats
Dividend yield 5.2%
Market capitalisation £396m
No. of shares out 152m
No. of shares floating 49m
No. of employees 360
Trading volume (10 day avg.) 0.1m
Turnover 87m USD
Profit before tax 26m USD
Earnings per share 0.12 USD
Cashflow per share 0.15 USD
Cash per share 0.58 USD

SafeCharge margins shake-up will calm

Payment solutions provider SafeCharge (SCHS) is increasing exposure to higher-quality merchants which is impacting margins, but Berenberg said this will stabilise.

Analyst Tammy Qiu retained her ‘buy’ recommendation and target price of 350p on the stock after interim results ‘provided clarity about the progress of its transition towards being a higher-quality and high-growth payment solutions provider’.

She said the shift ‘came at the expense of pricing and margins’ but ‘management expected these declines as exposure towards higher-quality and lower-risk merchants increases and the focus is to grow in scale’.

Qiu said this should ‘stabilise’ and the margin declines were expected, and should be ‘offset by selling value-added services and increasing scale in its off-the-shelf acquiring solution which targets the mid-market’.

The shares fell 1.3% to 257.2p yesterday.

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