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The Expert View: Kingfisher, Balfour Beatty and IQE

Our daily roundup of analyst commentary on shares, also including Inmarsat and Moneysupermarket.

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Key stats
Dividend yield 4.4%
Market capitalisation £4,996m
No. of shares out 2,110m
No. of shares floating 2,098m
No. of employees 78,000
Trading volume (10 day avg.) 6.8m
Turnover £11,655m
Profit before tax £940m
Earnings per share 22.04p
Cashflow per share 33.58p
Cash per share 10.64p

Questions remain at Kingfisher, says Interactive Investor

Benefits from Kingfisher’s (KGF) turnaround plan are being negated by weak performance and more questions remain, says Interactive Investor.

The shares have bounced off recent lows, gaining 14% over the past three months but the price is still down 27% over the last year.

Analyst Richard Hunter said ‘unfortunately any early benefits arising from the transformation plan are being negated by the weak performance of the underlying business’, with Castorama in France a long-standing problem and B&Q also struggling.

Screwfix has been the one exception to the ‘recent malaise’.

‘With more questions than answers remaining on the transformation plan, investors’ patience seems to have evaporated, with the market consensus of the shares now coming in at a “sell”,’ said Hunter.

The shares fell 6.4% to 229.7p yesterday.

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Key stats
Dividend yield 1.8%
Market capitalisation £1,895m
No. of shares out 690m
No. of shares floating 687m
No. of employees 20,238
Trading volume (10 day avg.) 1.8m
Turnover £6,634m
Profit before tax £140m
Earnings per share 19.65p
Cashflow per share 26.64p
Cash per share 95.83p

Liberum: Balfour could return more cash this year

Liberum is expecting cashflow at Balfour Beatty (BBY) to improve ‘substantially’ this year and enable the infrastructure group to return more cash to shareholders.

Analyst Joe Brent retained his ‘buy’ recommendation and target price of 350p on the stock, which was trading at 273.2p

The group achieved ‘industry standard margins’ in the second half of the year and Brent ‘expects industry standard margins from now’.

‘Profits in 2018 have benefited from £80 million of expected disposal gains, but we expect these to halve, improving the quality of profits,’ he said.

‘Cashflow in 2018 was broadly neutral… In 2019, cashflow should improve substantially, and we believe that this will provide the opportunity for the return of cash to shareholders.’

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Key stats
Dividend yield 0%
Market capitalisation £595m
No. of shares out 778m
No. of shares floating 651m
No. of employees 591
Trading volume (10 day avg.) 3.5m
Turnover £155m
Profit before tax £29m
Earnings per share 2.93p
Cashflow per share 4.57p
Cash per share 6.03p

AJ Bell: IQE remains a ‘marmite’ stock

IQE (IQE) remains a ‘marmite stock’ after its full-year results, evidenced by the microchip manufacturer’s status as one of the most shorted shares on the UK market, says AJ Bell.

Analyst Russ Mould said fans of the stock highlight its expertise in the manufacturing of components for semiconductors that are ‘increasingly embedded into everything’.

However, others argue that it ‘trades on a premium valuation and is just a minor player in a very complex supply chain with limited control over the pricing of its product’.

‘The 40% fall in operating profit reflects several factors, but foremost among them are slowing sales in the smartphone market and… a big drop off in orders from laser sensor maker Lumentum,’ said Mould.

While chief executive Drew Nelson has said the issues disguise its prospects, Mould argued IQE’s ‘presence on a list of most shorted UK stocks suggests plenty of people are far from convinced by this arguments’.

The shares slumped 11.3% to 74p yesterday.

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Key stats
Dividend yield 3.5%
Market capitalisation £2,369m
No. of shares out 463m
No. of shares floating 440m
No. of employees 1,854
Trading volume (10 day avg.) 4.8m
Turnover 1,105m USD
Profit before tax 595m USD
Earnings per share 0.20 USD
Cashflow per share 0.96 USD
Cash per share 0.47 USD

The Share Centre: Inmarsat will shrug off latest bid

Inmarsat (ISA) is in takeover talks again but The Share Centre believes the global satellite network will fight to remain independent.

The group was the target of failed takeover bids by Echostar and Eutelsat last year but that hasn’t deterred a consortium of Apax Partners, Warburg Pincus, and the Canadian Pension Plan investment groups from offering $7.21 per share, a 24% premium to Tuesday’s close price.

Echostar made a bid at a higher price that was not accepted, although Inmarsat then ran into profit problems mostly relating to its largest division, maritime.

Analyst Helal Miah said the latest bid came before the full-year results that were ‘on the whole fairly encouraging’ with maritime issues abating.

‘We believe once again Inmarsat may argue to remain independent and not recommend this offer to shareholders which we believe explains why the shares are not trading closer to the takeover price,’ he said.

The shares rose 13% to 495.3p yesterday.

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Key stats
Dividend yield 3.1%
Market capitalisation £1,947m
No. of shares out 536m
No. of shares floating 534m
No. of employees 721
Trading volume (10 day avg.) 1.4m
Turnover £356m
Profit before tax £129m
Earnings per share 16.11p
Cashflow per share 18.85p
Cash per share 8.36p

Outlook is good for Moneysupermarket, says Shore Capital

A meeting with the management of Moneysupermarket (MONY) has cemented Shore Capital’s view that the medium-term outlook for the price comparison site is positive.

Analyst Roddy Davidson retained his ‘hold’ recommendation on the shares, which rose 1.5% to 363.8p yesterday.

‘We are positive on the medium-term outlook for growth across the price comparison sector and this meeting cemented our view of Moneysupermarket as a well-managed business that has made tangible progress in strengthening its ability to capitalise,’ he said.

‘We would particularly cite strong brand awareness, the breadth of its inventory and the very substantial investment that it has made in technology and mobile functionality as important factors in this regard, and are also drawn to the group’s cash generative qualities.’

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