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The Expert View: Forterra, Compass and Pets At Home

Our daily roundup of analyst commentary on shares, also including On The Beach and Ten Lifestyle.

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Click on the arrow to the right of the picture to view the slides. The arrows to the top right then allow you to move back and forth between them.

To see all the slides on the same page, click here.

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Key stats
Dividend yield 5%
Market capitalisation £582m
No. of shares out 200m
No. of shares floating 196m
No. of employees 1,940
Trading volume (10 day avg.) 0.2m
Turnover £368m
Profit before tax £79m
Earnings per share 26.10p
Cashflow per share 31.88p
Cash per share 13.13p

Numis upgrades Forterra on pullback

Numis has upgraded brick manufacturer Forterra (FORT) after a pullback in the share price.

Analyst Christen Hjorth upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 350p on the stock after the group pointed reported in-line trading for the first four months of the year and confirmed planning consent for a major new brick plan.

The group has increased its dividend payout to 45% in 2019 and Hjorth said he assumed this would continue when the new plant comes on stream.

‘Based on our unchanged profit forecasts and updated dividend per share estimate, Forterra trades on a current year 2020 price/earnings of 9.8 times and a yield of 4.6%,’ said Hjorth.

‘Following a modest recent pullback in the group’s share price, our recommendation moves from “add” to “buy” on an unchanged target price.’

The shares rose 2.3% to 294p yesterday.

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Key stats
Dividend yield 2.1%
Market capitalisation £28,418m
No. of shares out 1,586m
No. of shares floating 1,579m
No. of employees 595,841
Trading volume (10 day avg.) 3.9m
Turnover £22,872m
Profit before tax £2,192m
Earnings per share 71.29p
Cashflow per share 106.12p
Cash per share 61.17p

Compass rising costs could hit special divis, says Jefferies

The world’s largest catering company Compass (CPG) will continue to face cost headwinds and special dividends may start to be eroded, says Jefferies.

Analyst Kean Marden retained his ‘hold’ recommendation and increased his target price from £16.70 to £17.10. The shares rose 4p to £18.04 yesterday.

Compass’ underlying earnings margin fell in the first half of the year and Marden said ‘cost headwinds are unlikely to abate, and management’s narrative now more explicitly favours organic revenue growth’.

‘Although reported earnings per share growth is likely to remain resilient and sustain the premium valuation multiple, a higher contribution from mergers and acquisitions may dilute return on capital invested and erode special dividends,’ he said.

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Key stats
Dividend yield 5.1%
Market capitalisation £733m
No. of shares out 500m
No. of shares floating 452m
No. of employees 6,701
Trading volume (10 day avg.) 0.8m
Turnover £899m
Profit before tax £123m
Earnings per share 12.49p
Cashflow per share 19.34p
Cash per share 12.20p

Pets at Home shares treading water, says Shore Capital

Pets at Home (PETS) is operating in a structural growth market and is attractive but the shares will tread water for a while yet, says Shore Capital.

Analyst Greg Lawless reiterated his ‘hold’ recommendation on the stock ahead of preliminary results which are expected to feature increased revenues.

Lawless said the ‘reset’ at the business meant 2019 and 2020 were ‘transitional’ as the company ‘regroups to deliver sustainable growth in the medium term’.

‘We continue to believe that Pets operates in an attractive market with structural growth,’ he said.

‘While the business remains on the right track, there is much work to do before earnings start to rebuild back towards historic levels. We expect the shares to tread water for the time being, as the shares look up with events.’

The shares rose 1% to 147.8p yesterday.

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Key stats
Dividend yield 0.8%
Market capitalisation £579m
No. of shares out 131m
No. of shares floating 115m
No. of employees 504
Trading volume (10 day avg.) 0.2m
Turnover £104m
Profit before tax £35m
Earnings per share 16.45p
Cashflow per share 22.34p
Cash per share 36.10p

On The Beach is cheap, says Berenberg

Brexit is taking a toll on online travel agent On The Beach (OTB) but Berenberg says it remains a solid buy for the long term.

Analyst Owen Shirley retained his ‘buy’ recommendation and target price of 630p on the shares, which were trading at 441p yesterday.

He said there was ‘near-term overhang’ from Brexit but it ‘remains a conviction long-term “buy” for us’.

‘The company continues to outperform in what is clearly a challenging market and should see a deserved rerating once the Brexit fog eventually clears,’ said Shirley.

‘On The Beach currently trades at 16 times full-year 2020 price/earnings. We consider that cheap for a capital-light online platform business delivering double-digit earnings growth.’

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Key stats
Dividend yield 0%
Market capitalisation £58m
No. of shares out 81m
No. of shares floating 32m
No. of employees 750
Trading volume (10 day avg.) 0.1m
Turnover £40m
Profit before tax £-5m
Earnings per share -11.10p
Cashflow per share -6.42p
Cash per share 25.31p

Peel Hunt: Ten Lifestyle broadens appeal

A new deal by concierge company Ten Lifestyle (TENG) shows it is continuing to broaden its customer base and its appeal, says Peel Hunt.

Analyst James Lockyer retained his ‘buy’ recommendation and target price of 115p on the shares, which rose 5.8% to 73.3p yesterday.

It announced a three-year deal with an as yet undisclosed global technology, media and telecommunications (TMT) brand to deliver a loyalty contract for its customers.

Lockyer said for TMT companies ‘retaining valuable customers is much more cost effective than trying to acquire new ones’.

‘With its foray into employee loyalty and now into TMT, Ten continues to show that its offering, especially its digital platform, is suitable for a much wider audience than its pure-play financial services end customers focus to date,’ he said. 

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