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The Expert View: Provident Financial, Convatec and Majestic Wine

Our daily roundup of analyst commentary on shares, also including Volution and Soco International.

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Key stats
Dividend yield 1.9%
Market capitalisation £1,310m
No. of shares out 253m
No. of shares floating 249m
No. of employees 5,326
Trading volume (10 day avg.) 1m
Turnover £1,124m
Profit before tax £585m
Earnings per share 25.10p
Cashflow per share 36.89p
Cash per share 172.01

Numis keeps Provident under review amid defence against bid

Numis is keeping Provident Financial (PFG) ‘under review’ as the doorstep lender issued its defence document against a £1.3 billion hostile takeover from rival Non-Standard Finance.

Analyst James Hamilton, who rated the shares a ‘buy’ prior to the bid has his recommendation under review as he sees ‘a very wide range of potential value outcomes for Provident given its current situation and consequently we find it impossible to ascribe a definitive value at this time’.

Hamilton said NSF was ‘over-leveraged and has over-lent at the top of the cycle and since IPO shareholders have lost 42% of their investment against a stock market that has gone up’.

‘Does the deal create value for non-NSF Provident shareholders? In our opinion, no,’ he said.

‘However, with 49.4% of Provident shareholders being larger NSF shareholders, we now approach the real question, does the deal make sense for them? Yes, we think that it does – which is why they support it.’

Shares in Provident fell 3.8p to 518.8p yesterday.

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Key stats
Dividend yield 3.3%
Market capitalisation £2,768m
No. of shares out 1,966m
No. of shares floating 1,502m
No. of employees 9,497
Trading volume (10 day avg.) 6.1m
Turnover 1,387m USD
Profit before tax 364m USD
Earnings per share 0.09 USD
Cashflow per share 0.16 USD
Cash per share 0.12 USD

AJ Bell: Convatec in need of a shake-up

A management shake-up at medical equipment maker Convatec (CTEC) could be the start of a new way of thinking that could benefit investors, says AJ Bell.

Convatec has poached Genus’ boss Karim Bitar to be its new chief executive to lead its turnaround effort just as the former is also losing its chairman and deputy chairman.

‘Convatec desperately needs a new lease of life as it has been a serial disappointment for most of its time as a listed business,’ said analyst Russ Mould.

Last month, the group announced plans to invest $150 million over three years and Mould said ‘the scale of such investment was significantly greater than expected, despite having scope to deliver $120 million in annual savings by 2023, as well as improvements in revenue growth and profit margins’.

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Key stats
Dividend yield 2.7%
Market capitalisation £172m
No. of shares out 72m
No. of shares floating 53m
No. of employees 1,528
Trading volume (10 day avg.) 0.1m
Turnover £476m
Profit before tax £20m
Earnings per share 10.12p
Cashflow per share 23.66p
Cash per share 21.84p

Majestic sets out transformation plan

Majestic Wines (WINEW) is planning to build on the success of its Naked Wines brand with a transformation plan and Edison says any costs should be offset by asset sales.

Majestic is planning to reform the entire group around Naked, which analyst Paul Hickman said was an ‘inevitable response to the success of its growth child Naked Wines’, which was acquired in 2015 and has become the ‘growth engine’ of the group.

‘The endgame for the plan is to move the entire business under the Naked brand, and business model, and rename it Naked Wines plc,’ he said.

‘The restructuring will cost up to £10 million in full year 2019, with further costs from 2020 onwards, which may be substantial, though cash costs should be offset by asset sales.’

The shares fell 12% to 238.5p yesterday.

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Key stats
Dividend yield 2.7%
Market capitalisation £344m
No. of shares out 198m
No. of shares floating 189m
No. of employees 1,651
Trading volume (10 day avg.) 0.2m
Turnover £206m
Profit before tax £41m
Earnings per share 6.69p
Cashflow per share 16.05p
Cash per share 9.16p

Volution: Liberum predicts ‘substantial’ valuation uplift

Shares in ventilation products supplier Volution (FAN) have derated but Liberum is confident that the main drivers of the fall are behind the group.

Analyst Charlie Campbell retained his ‘buy’ recommendation and increased the target price from 226p to 235p. The shares fell 1.7% to 170p yesterday.

‘The Reading factory is now complete and operating at normal levels, and organic growth is improving, with more to come in the second half,’ he said.

‘Management is now making margin restoration a priority, and success should drive a substantial uplift in valuation.’

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Key stats
Dividend yield 8.1%
Market capitalisation £231m
No. of shares out 332m
No. of shares floating 182m
No. of employees 19
Trading volume (10 day avg.) 0.8m
Turnover 133m USD
Profit before tax 71m USD
Earnings per share 0.05 USD
Cashflow per share 0.17 USD
Cash per share 0.55 USD

Peel Hunt upgrades Soco after acquisition

Peel Hunt has upgraded oil exploration company Soco International (SIA) as it believes the markets has missed the value from its ‘transformational’ Egypt acquisition.

Analyst Matt Cooper upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 130p after Soco made its foray into Egypt with the acquisition of Merlon.

‘We believe the value in the transformative Egypt acquisition has been missed by the market,’ he said.

‘The proposed acquisition gives Soco scale and numerous upside opportunities. Soco ticks our boxes of undervalued assets, a clear path to production/net asset value growth, a robust balance sheet, and a strong management team.’

The shares rose 4.3% to 70.9p yesterday.

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