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The Expert View: Sainsbury’s, Barclays and Carpetright

Our daily roundup of analyst commentary on shares, also including Tullow Oil and CRH.

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Key stats
Dividend yield 4%
Market capitalisation £4,770m
No. of shares out 2,207m
No. of shares floating 2,200m
No. of employees 52,800
Trading volume (10 day avg.) 6.7m
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 needs a plan B, says Fidelity

Sainsbury’s (SBRY) needs to deliver a plan to rebuild sales and profits after the Competition and Markets Authority (CMA) blocked its merger with Asda, says Fidelity.

The competition watchdog has blocked the planned merger with Walmart-owned Asda, which analyst Tom Stevenson said would ‘surprise no-one’ after the CMA’s provisional ruling on the deal, which expressed its ‘deep reservations’.

‘Sainsbury’s will need to deliver a convincing plan to rebuild sales and profits if it is to avoid further weakness in its battered shares, although these have already largely priced in the decision by the CMA,’ he said.

‘The stock has not been lower since the late 1980s. Sainsbury’s is the sector’s laggard , struggling to keep up with recovering Tesco and the discounters Aldi and Lidl. The wait for better times is eased by a decent forecast dividend income but better times may be some way off.’

The shares fell 4.7% to 214p yesterday.

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Key stats
Dividend yield 3.9%
Market capitalisation £27,539m
No. of shares out 17,236m
No. of shares floating 17,161m
No. of employees 83,500
Trading volume (10 day avg.) 30.3m
Turnover £13,510m
Profit before tax £10,358m
Earnings per share 11.70p
Cashflow per share 23.36p
Cash per share 1,095.22p

Significant upside at Barclays, says Shore Capital

First quarter results from Barclays (BARC) show there is ‘significant upside potential’ for the bank’s shares, says Shore Capital.

Analyst Gary Greenwood reiterated his ‘buy’ recommendation on the shares, which fell 3.6% to 160.4p yesterday.

Profit before tax fell 10% year-on-year, 1% worse than consensus expectations, with weaker-than-expected income mostly offset by better-than-expected costs.

‘We think that achievement of the group’s return on tangible equity targets, along with the return of surplus capital via share buybacks, could drive significant upside potential in the shares and believe management are taking the right steps to deliver despite a tough start to the year,’ said Greenwood.

He added that he did not think Barclays should shrink the investment bank as it would ‘further damage returns’ due to the restructuring costs.

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Key stats
Dividend yield 0%
Market capitalisation £16m
No. of shares out 68m
No. of shares floating 64m
No. of employees 3,206
Trading volume (10 day avg.) 0m
Turnover £458m
Profit before tax £27m
Earnings per share 1.01p
Cashflow per share 18.64p
Cash per share 18.41p

Peel Hunt positive on Carpetright recovery

Carpetright (CPRC) is entering the new financial year with a more ‘stable platform for recovery’, says Peel Hunt.

Analyst John Stevenson retained his ‘buy’ recommendation and target price of 70p on the shares, which surged 83% to 28p yesterday.

The group announced a fourth quarter trading update in line with expectations and a ‘significant improvement in like-for-like sales and a recovery in profitability.

‘There is still much to be done but with the initial batch of store closures from the company voluntary arrangement completed and the group’s £19 million cost saving target on track, Carpetright will enter the new financial year with a much more stable platform for recovery,’ he said.

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Key stats
Dividend yield 1.6%
Market capitalisation £2,145m
No. of shares out 911m
No. of shares floating 851m
No. of employees 2,071
Trading volume (10 day avg.) 8.3m
Turnover 1,483m USD
Profit before tax -88m USD
Earnings per share -1.15 USD
Cashflow per share -0.75 USD
Cash per share 0.23 USD

Tullow divi party spoilt, says Hargreaves

Technical problems in Ghana have spoilt the dividend party at Tullow Oil (TLW), says Hargreaves Lansdown.

First quarter production was below expectations due to problems in Ghana and although the underlying issue has been resolved, the group has lowered its full-year oil production forecast.

Analyst George Salmon said investors, who had had weathered the oil price crash of 2014/15 and 2017’s rights issue, should finally be ‘getting rewarded for their patience with the group’s first dividend since 2014’.

‘While shareholders are still getting a payout, production issues in Ghana have spoiled the party,’ he said.

‘Beyond these problems though, Tullow looks in ever-improving health. It’s locked in prices of over $56 a barrel for approaching half its anticipated volumes in the next two years, and the rest should fetch even more given the market price is well above that at the moment.’

The shares fell 2.3% to 234.8p yesterday. 

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Key stats
Dividend yield 2.4%
Market capitalisation £20,665m
No. of shares out 809m
No. of shares floating 808m
No. of employees 89,831
Trading volume (10 day avg.) 1.3m
Turnover 23,245m EUR
Profit before tax 2,937m EUR
Earnings per share 1.49 EUR
Cashflow per share 2.66 EUR
Cash per share 2.50 EUR

Numis downgrades CRH after share price rise

Numis has downgraded building materials company CRH (CRH), which has seen its share price gain 25% since the start of the year.

Analyst Christen Hjorth downgraded his recommendation from ‘add’ to ‘hold’ with a target price of £26.85 on the stock after a first quarter update that was ‘robust’ and shows the group ‘benefiting from softer comparatives following poor weather at the start of 2018’.

He said if first-half earnings guidance is hit there was potential upside to full-year forecasts but the weather would be a factor.

‘Recent years have demonstrated the impact of weather on CRH’s ability to hit consensus forecasts and we also remain cognisant that US macro concerns could reappear,’ said Hjorth.

‘Based on these factors, and with the group’s share price up over 25% since the start of the year, we move from “add” to “hold”.’

The shares fell 2.1% to £25.52 yesterday.

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