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The Expert View: Persimmon, Provident and Boohoo

Our daily roundup of analyst commentary on shares, also including Savills and Spire Healthcare

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Key stats
Dividend yield 10.5%
Market capitalisation £7,104m
No. of shares out 318m
No. of shares floating 301m
No. of employees 4,535
Trading volume (10 day avg.) 1.2m
Turnover £3,598m
Profit before tax £975m
Earnings per share 243.10p
Cashflow per share 245.69p
Cash per share 421.78p

Persimmon’s dividend ‘gravy train’ will roll on, says Hargreaves

Hargreaves Lansdown expects the dividend ‘gravy train’ to roll on at Persimmon (PSN), with the house builder offering an ‘absurd’ yield of 10% for the next two years.

Revenues at the housebuilder rose 4% to £37 billion last year, with a 3% increase in homes sold and an average selling price creeping up by 1%. It is expecting profits to come in slightly ahead of market expectations.

However, the rate of sales growth is slowing due to a more cautious property market

Analyst Laith Khalaf said the ‘gravy train’ of cash returns was expected to continue and ‘when combined with a share price that’s been battered by Brexit, Persimmon offers shareholders an absurd yield of 10% for the next two years’.

However, he noted Brexit looming large over the sector, which is at the mercy of any interest rate rises but ‘there is a lot of bad news baked into the share prices of the house builders, and a positive resolution to Brexit would see relief flooding this part of the market’.

The shares dipped 19p to £22.10 yesterday.

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Key stats
Dividend yield 0%
Market capitalisation £1,359m
No. of shares out 253m
No. of shares floating 252m
No. of employees 4,466
Trading volume (10 day avg.) 0.5m
Turnover £1,196m
Profit before tax £607m
Earnings per share -66.40p
Cashflow per share -52.32p
Cash per share 162.29p

Shore Capital puts Provident ‘under review’ after ‘kick in the teeth’

Shore Capital has placed Provident Financial (PFG) ‘under review’ after the doorstep lender’s profit warning.

Analyst Gary Greenwood placed his ‘buy’ recommendation ‘under review’ after the group released a full-year trading update that said profit before tax was expected to be at the lower end of expectation due to higher than expected impairments at Vanquis Bank.

The company could now deliver a loss of ‘maybe £15 million to £20 million versus consensus at £2 million profit and our forecast for a £1 million loss’, said Greenwood.

‘[The] news is another severe kick in the teeth for the investment case and is likely to see the shares fall sharply,’ he said. ‘We place our recommendation “under review” pending the share price settling down, but at this stage our inkling is that the shares would need to be trading closer to 500p for us to maintain a positive stance.’

The shares tumbled 19.7% to 519.8p yesterday.

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Key stats
Dividend yield 0%
Market capitalisation £2,122m
No. of shares out 1,163m
No. of shares floating 768m
No. of employees 2,126
Trading volume (10 day avg.) 7.8m
Turnover £580m
Profit before tax £54m
Earnings per share 2.72p
Cashflow per share 4.03p
Cash per share 12.40p

Pick up Boohoo cheap, says Liberum

Boohoo (BOOH) has ‘undeservedly’ de-rated, providing an opportunity to pick up the shares cheaply, says Liberum.

Analyst Wayne Brown retained his ‘buy’ recommendation and target price of 240p on the stock after management upgraded sales growth guidance for 2019 driven by outperformance and higher gross margins.

‘We understand the group’s own channels alongside wholesale, which remains a low single digit percentage of the mix, have performed in a similar vein suggesting broad resonance of brand strength across all channels,’ he said.

‘The share price has de-rated undeservedly of late – from 100% to 35% of its peak/trough 12-month forward price/earnings rating in the last 18 months – presenting an opportunity to pick up the shares a lot cheaper.’

The shares fell 8.1% to 178.8p yesterday.

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Key stats
Dividend yield 3%
Market capitalisation £1,056m
No. of shares out 143m
No. of shares floating 134m
No. of employees 34,429
Trading volume (10 day avg.) 0.2m
Turnover £1,600m
Profit before tax £149m
Earnings per share 57.54p
Cashflow per share 74.64p
Cash per share 147.11p

Numis upgrades Savills after share price pressure

Numis has upgraded estate agent Savills (SVS) after a fall in the share price despite profit forecasts staying on track.

Analyst Chris Millington upgraded his recommendation from ‘add’ to ‘buy’ with a target price of £11.20 on the shares, which fell 4.9% to 727p yesterday.

‘Savills confirms that full year revenue and profit are expected to show some growth and be in-line with market expectations, and we broadly maintain estimates,’ he said.

‘In our view, the 2018 price/earnings of 10 times is not demanding for a business so diverse by end markets and geography. Given the fall in the share price and the beat/maintenance of profit forecasts, we move from “add” to “buy”.’

Millington added that the share price was under ‘heavy pressure’ last year due to Brexit uncertainty and a second half profit weighting and ‘guidance of a flattish 2019 should be well received’.

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Key stats
Dividend yield 3.3%
Market capitalisation £357m
No. of shares out 352m
No. of shares floating 272m
No. of employees 4,908
Trading volume (10 day avg.) 0.7m
Turnover £311m
Profit before tax £33m
Earnings per share 2.68p
Cashflow per share 6.04p
Cash per share n/a

Downside at Spire Healthcare, warns Berenberg

Spire Healthcare (SPI) has just missed its 2018 earnings target and Berenberg believes there is more downside than upside to come. 

Analyst Charles Weston retained his ‘hold’ recommendation and target price of 120p on the shares, which slumped 11.1% to 103.7p yesterday.

It expects earnings for 2018 to coming in slightly under guidance although revenue is in line with market expectations.

‘The slight miss to guidance, which had been slashed in September, and to consensus, which has been cut twice in the year, will not be taken well by the market,’ he said.

‘It will take at least one reporting period without downgrades for the stock to demonstrate some strength, and in the meantime we suspect that there is more downside to forecast than upside.’

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