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The Expert View: Lloyds, Sainsbury’s and Intu

Our daily roundup of analyst commentary on shares, also including Bunzl and Low & Bonar.

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Key stats
Dividend yield 5.4%
Market capitalisation £43,803m
No. of shares out 71,172m
No. of shares floating 70,930m
No. of employees 67,905
Trading volume (10 day avg.) 105.7m
Turnover £16,006m
Profit before tax £11,652m
Earnings per share 4.34p
Cashflow per share 8.17p
Cash per share 90.47p

Lloyds in rude health, says Interactive Investor

Lloyds (LLOY) profits may have marginally fallen short of expectations but 2018 results show a bank in ‘rude health’ with a ‘clear vision’, according to Interactive Investor.

Analyst Richard Hunter hailed the bank’s streamlined business model and market-leading digital presence, and analyst Richard Hunter said a £3 billion investment into the business should reap benefits as it moves into financial planning via a tie-up with fund group Schroders.

He noted post-tax profit was up 24% and net interest margin had improved. ‘Negatives within the results are few and far between,’ he said.

‘The share price has suffered in a way the company has clearly not. This therefore leads to the dilemma of whether investors should take the plunge, since in the event of a positive Brexit result, the stock would surely be subject to a significant reappraisal.

‘The market certainly seems to think so – the current consensus of the shares comes in at a strong “buy”.’ The shares jumped 4.7% to 61.1p yesterday.

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Key stats
Dividend yield 3.1%
Market capitalisation £5,330m
No. of shares out 2,203m
No. of shares floating 2,196m
No. of employees 52,800
Trading volume (10 day avg.) 5.4m
Turnover £28,456m
Profit before tax £1,429m
Earnings per share 12.72p
Cashflow per share 42.80p
Cash per share 88.10p

Sainsbury’s and Asda merger on the rocks

The Sainsbury’s (SBRY) merger with Asda has been put into jeopardy by the Competition and Markets Authority (CMA) and the supermarkets can no longer be sure of a favourable ruling, says Hargreaves Lansdown.

The CMA has raised competition concerns about the deal but left the door open for the supermarkets to sell off assets to complete it, although analyst Laith Khalaf said ‘it’s clearly not keen on that solution’.

‘The supermarkets will now have to bend over backwards if they want to proceed with the merger, and even then, wouldn’t be guaranteed a favourable ruling from the CMA,’ he said.

Khalaf said they would have the extra pressure of finding buyers for the assets sold and if they do sell enough to push the merger through ‘the combined entity may damage competition by being too weak, rather than too strong’.

Sainsbury’s shares slumped 18.6% to 234.5p yesterday.

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Key stats
Dividend yield 11.9%
Market capitalisation £1,454m
No. of shares out 1,355m
No. of shares floating 771m
No. of employees 2,589
Trading volume (10 day avg.) 2.1m
Turnover £616m
Profit before tax £392m
Earnings per share 15.05p
Cashflow per share 14.44p
Cash per share 16.61p

Intu in a ‘right mess’, says AJ Bell

Shopping centre owner Intu (INTU) is selling property in a weak market that shows ‘how desperate it is’, says AJ Bell.

The real estate investment trust (Reit) swung into the red last year as more than £1.4 billion was wiped off the value of its property portfolio.

Analyst Russ Mould said the group was in ‘a right mess’ as the retail sector had become a ‘poisoned chalice’ for property companies, and investors were suffering as they are being denied a dividend.

‘The company is trying to sell assets and has received some unsolicited offers for properties in Spain,’ he said.

‘Selling assets into a weak market shows how desperate it is. Any buyer would have the upper hand in pricing negotiations. In time Intu could emerge a leaner business but for now it will have to keep taking the headache tables and do its best to survive the turmoil.’

The shares slumped 7.8% to 109p yesterday.

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Key stats
Dividend yield 1.9%
Market capitalisation £8,421m
No. of shares out 336m
No. of shares floating 329m
No. of employees 17,595
Trading volume (10 day avg.) 0.6m
Turnover £8,581m
Profit before tax £621m
Earnings per share 93.50p
Cashflow per share 132.01p
Cash per share 99.31p

Bunzl at a high but it’s still a good play, says Shore Capital

Outsourcing business Bunzl (BNZL) remains a ‘high quality defensive play’ for Shore Capital despite the shares trading at an all-time high.

Analyst Robin Speakman retained his ‘buy’ recommendation on the shares, which were trading at £25.15 yesterday.

‘Trading at all-time-high share price levels, we remain positive on prospects for the provider of working capital efficiency-focused products and services,’ he said.

He said margins remained stable and the outlook was positive, although with ‘perhaps lower global economic growth levels to leverage this year and perhaps for 2020’.

‘Bunzl remains a high-quality defensive play,’ said Speakman. ‘The cashflow generation capability continues to drive growth… we look for a flow of modest underlying upgrades to continue – sustaining share price performance over the medium term.’

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Key stats
Dividend yield 7.9%
Market capitalisation £137m
No. of shares out 812m
No. of shares floating 300m
No. of employees 1,981
Trading volume (10 day avg.) 0.3m
Turnover £432m
Profit before tax £43m
Earnings per share -12.81p
Cashflow per share -6.21p
Cash per share 13.26p

Peel Hunt: Low & Bonar shares to recover

Peel Hunt has reinstated coverage of Low & Bonar (LWB) on the expectation that the shares will recover as the packaging group deleverages the balance sheet.

Analyst Dominic Convey moved to a ‘buy’ rating and a target price of 25p on the stock as he said the ‘£50 million proceeds of the placing and open offer removes the threat of covenant breach and provides the management team with sufficient headroom on the balance sheet and financial flexibility to continue to deliver the turnaround strategy’.

He said the medium-term targets set by the group were clear and sustainable.

‘As the balance sheet continues to deleverage and progress is made on the turnaround, we expect the shares to recover,’ he said.

The shares were trading at 17p yesterday.

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