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The Expert View: JD Sports, Metro Bank and Petra Diamonds

Our daily roundup of analyst commentary on shares, also including IMI and DWF.

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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 0.3%
Market capitalisation £5,840m
No. of shares out 973m
No. of shares floating 405m
No. of employees 32,125
Trading volume (10 day avg.) 1.4m
Turnover £4,718m
Profit before tax £477m
Earnings per share 26.90p
Cashflow per share 38.96p
Cash per share 25.81p

JD Sports deserves premium rating, says Shore Capital

Record 2019 results from JD Sports (JD) show the sportswear retailer deserves to trade on a premium, says Shore Capital.

Analyst Greg Lawless reiterated his ‘buy’ recommendation on the stock after strengthening sales pushed it to double-digit growth in Europe and Asia. It is also making ‘encouraging noises’ about its US acquisition.

‘There is a clear plan to trade the US business harder, implying a significant margin opportunity,’ said Lawless.

‘The company deserves to trade on a premium rating justifying the rising valuation multiples, given the international growth prospects. JD is well managed by an established management team with good cash generation and tight stock and cost controls. Despite the recent share price appreciation of 22% in the last month, we continue to reiterate our “buy” rating.’

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Key stats
Dividend yield 0%
Market capitalisation £789m
No. of shares out 97m
No. of shares floating 79m
No. of employees 2,831
Trading volume (10 day avg.) 0.3m
Turnover £444m
Profit before tax £90m
Earnings per share 28.27p
Cashflow per share 75.22p
Cash per share 2,537.99p

Goodbody: no let-up over Metro woes

Shareholders in Metro Bank (MTRO) have called for senior management to go after its loans were given the wrong status but Goodbody believes it faces even more problems.

A ‘top City backer’ has told The Sunday Telegraph that either the chairman of chief executive will have to go over the loan blunder and analyst John Cronin said the shareholder was right and ‘we think it is far more likely that the chairman will have to go’.

However, the bank has further worries, namely whether it will be able to raise the capital it needs via a proposed rights issue given the loan book problem wiped 40% of the already troubled share price.

‘There is major downside risk for investors in Metro Bank if it can’t pull off this equity raise – while we wouldn’t underestimate management, we would be much more comfortable short than long,’ said Cronin.

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Key stats
Dividend yield 0%
Market capitalisation £159m
No. of shares out 865m
No. of shares floating 831m
No. of employees 5,497
Trading volume (10 day avg.) 6.6m
Turnover 382m USD
Profit before tax 156m USD
Earnings per share -0.09 USD
Cashflow per share 0.05 USD
Cash per share 0.20 USD

Petra through the worst, says Berenberg

Berenberg has upgraded Petra Diamonds (PDL) as it believes the worst is over for the miner.

Analyst Richard Hatch upgraded his recommendation from ‘hold’ to ‘buy’ and increased the target price from 23p to 25p as he believes the ‘worst is largely over for Petra and, with the free cashflow inflection beginning to occur, we think the shares will rerate in line as more stable operational and financial performance comes through’.

He said that Petra ‘still needs to rebuild investor confident’ but said operational delivery and consistent free cashflow generation over the next 18 months would reassure.

‘With operations and cashflow stabilising, we believe it is time to revisit the story and begin building a position, or adding to existing holdings,’ said Hatch.

The shares were trading at 17.8p yesterday.

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Key stats
Dividend yield 4%
Market capitalisation £2,814m
No. of shares out 272m
No. of shares floating 272m
No. of employees 10,967
Trading volume (10 day avg.) 0.5m
Turnover £1,907m
Profit before tax £317m
Earnings per share 62.88p
Cashflow per share 92.26p
Cash per share 49.96p

Look to 2020 for IMI growth, says Peel Hunt

The fruits of the growth plan put in place at engineer IMI (IMI) should be seen next year, according to Peel Hunt.

Analyst Harry Philips retained his ‘add’ recommendation and target price of £11 on the shares, which were trading at £10.41 yesterday.

The group’s outgoing chief executive put a five-year plan in place in 2014 to drive long-term sustainable growth, which required considerable investment.

‘The challenge for chief executive designate Roy Twite, is to, in effect, further commercialise this enhanced platform against an end-market backdrop that is set to be mixed through 2019,’ said Philips.

‘It will come, but it is more of a 2020 proposition. This is reflected in a current year price/earnings of 14.1 times which compared to a sector average of 15 times. The wait to 2020 is underpinned by a 4% dividend yield and ‘add’ continues to be the appropriate recommendation.’

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Jefferies initiates with ‘buy’ on DWF

Jefferies has initiated coverage of legal group DWF (DWF), which is says offers a ‘strong growth story’.

Analyst Will Kirkness initiated coverage with a ‘buy’ recommendation and a target price of 165p on the shares, which were trading at 122p yesterday.

‘With a focus on both complex and managed services augmented by international growth and bolt-on mergers and acquisitions, we believe DWF provides a strong growth story,’ he said.

‘We see a 35% earnings per share compound annual growth rate as the top line grows into the current cost base. The current valuation, contingent on forecast execution and improving free cashflow conversion, is extremely appealing.’

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