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The Expert View: EasyJet, Dixons Carphone and Kier

Our daily roundup of analyst commentary on shares, also including IG Group and Aggreko

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Key stats
Dividend yield 5.1%
Market capitalisation £4,866m
No. of shares out 397m
No. of shares floating 260m
No. of employees 13,104
Trading volume (10 day avg.) 2.3m
Turnover £5,898m
Profit before tax £810m
Earnings per share 90.18p
Cashflow per share 144.08p
Cash per share 345.66p

Turbulence ahead for EasyJet, says Interactive Investor

EasyJet (EZJ) has weathered headwinds better than rival Ryanair but that doesn’t mean there isn’t turbulence ahead, says Interactive Investor.

Full-year numbers from the budget airline show revenues up nearly 14%, income rising 20%, and passenger numbers up 15%.

However, analyst Richard Hunter said ‘as is often the case with the airline sector, headwinds abound’.

‘Although the company declares itself well prepared for Brexit, it cannot control the effects which a poor outcome could have on consumer confidence,’ he said.

He added that the overall margin between revenue and cost per seat was ‘wafer thin’ and new accounting practices would have a short-term negative effect, while the financial impact of the Gatwick drone chaos would have to be absorbed.

‘These general concerns have weighed heavily on the shares, which have dropped 27% over the last year. Indeed, the decline has left the EasyJet share price flying perilously near the levels which could make it a candidate for FTSE100 relegation, which could leave investors twitching uncomfortably in their seats,’ said Hunter.

The shares rose 6.3% to £12.35 yesterday.

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Key stats
Dividend yield 7.3%
Market capitalisation £1,657m
No. of shares out 1,160m
No. of shares floating 962m
No. of employees 42,974
Trading volume (10 day avg.) 2.8m
Turnover £10,525m
Profit before tax £565m
Earnings per share 20.35p
Cashflow per share 37.93p
Cash per share 14.51p

Hargreaves: Dixons Carphone future ‘uncertain’

Electricals are keeping Dixons Carphone (DC) profits on track but the conditions for mobile remain ‘nasty’, says Hargreaves Lansdown.

The electrical retailer saw like-for-like revenues rise 1% in the 10 weeks to 5 January and margins remain stable, with the company on course to deliver a £300 million profit this financial year.

Analyst Laith Khalaf said ‘mobile phone sales are in free fall, but profits at Dixons Carphone remain on course thanks to a good showing from its UK electrical business, and its European operations’.

‘In pretty nasty conditions, these latest numbers from Dixons Carphone are as good as could be hoped,’ he said.

‘Progress now hinges on building the online offering, creating cost savings from properly integrating its two UK businesses, and expanding the credit service it offers customers.’

He added that the dividend had been ‘significantly trimmed this year, through so has the share price’, leaving it trade on a yield of around 6.5%, ‘an elevated number which reflects uncertainty about the future earnings of the company’.

The shares rose 4.1% to 143.2p yesterday.

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Key stats
Dividend yield 13%
Market capitalisation £860m
No. of shares out 162m
No. of shares floating 155m
No. of employees 20,064
Trading volume (10 day avg.) 0.8m
Turnover £4,220m
Profit before tax £145m
Earnings per share 88.27p
Cashflow per share 145.26p
Cash per share 348.98p

Kier chief steps down

Kier (KIE) chief executive Haydn Mursell has stepped down after an underwhelming rights issue, but the fund raise does put it on a secure footing, says AJ Bell.

Mursell’s departure is only a ‘mild surprise’ given shareholder Neil Woodford’s push for change, said analyst Russ Mould.

The company has endured a number of setbacks, not least the ‘indignity’ of only a third of the shares offered in a £250 million rights issue at the end of 2018 being taken up.

‘Using the share price as the barometer, the market verdict on Mursell’s four-and-a-bit years in the top job does not paint his tenure in a particularly favourable light,’ said Mould.

‘The shares are down more than 60%, although it is worth noting just how weak sentiment is towards the construction and outsourcing space has been, particularly since the collapse of Carillion.’

He said the fund raise may not have been a success but at least it has ‘put the company on a surer footing financially’.

The shares rose 1.3% to 530.5p yesterday.

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Key stats
Dividend yield 6.7%
Market capitalisation £2,211m
No. of shares out 369m
No. of shares floating 365m
No. of employees 1,597
Trading volume (10 day avg.) 0.8m
Turnover £595m
Profit before tax £299m
Earnings per share 61.20p
Cashflow per share 65.96p
Cash per share 95.58p

IG Group still a ‘quality operator’, says Shore Capital

The derating last year at IG Group (IGG) was overdone and Shore Capital continues to be a ‘quality operator’ that can re-establish its top-line growth.

Analyst Paul McGinnis retained his ‘buy’ recommendation and ‘fair value’ price of 800p on the stock after half-year results that showed a revenue fall of 6%.

He said the derating at the back end of last year was ‘overdone’ and led to his upgrade to ‘buy’ in December for the first time since initiating coverage on the stock in 2015.

‘While quarterly revenue volatility has always been a feature in the results of the leveraged trades, we think that IG Group is a quality operator that will successfully navigate the new regulations and ultimately re-establish a level of growth – top line approximately mid-single digit – in a cleaned-up industry,’ he said.

The shares tumbled 9.4% to 580.5p yesterday.

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Key stats
Dividend yield 3.6%
Market capitalisation £1,824m
No. of shares out 256m
No. of shares floating 238m
No. of employees 5,978
Trading volume (10 day avg.) 0.6m
Turnover £1,698m
Profit before tax £519m
Earnings per share 40.00p
Cashflow per share 157.65p
Cash per share 27.72p

Peel Hunt downgrades under pressure Aggreko

Peel Hunt has downgraded power supplier Aggreko (AGGK) due to the ‘fragile’ macro-economic backdrop.

Analyst Andrew Nussey downgraded his recommendation from ‘hold’ to ‘reduce’ and lowered the target price from 800p to 700p. The shares fell 4.9% to 711.6p yesterday.

‘Management is performing well across tricky markets,’ he said. ‘The third quarter update provided some reassurance that Aggreko remains on track, but the ever-shifting challenges remain significant.

‘We are wary that the fragile global macro-economic backdrop is likely to lead to customer hesitancy and greater off-hire risk.’

Nussey added that while self-help would ‘mitigate some earnings pressure’ the pace of return recovery ‘looks to be under increasing external pressure’.

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