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The Expert View: Tesco, M&S and Card Factory

Our daily roundup of analyst commentary on shares, also including AO World and Barratt Developments.

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If you would like to receive news alerts on any of the stocks mentioned in The Expert View, click on the star icons below to add them to your favourites.

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Key stats
Market capitalisation£16,567m
No. of shares out8,191m
No. of shares floating8,032m
No. of common shareholdersnot stated
No. of employees133041
Trading volume (10 day avg.)18m
Turnover£55,917m
Profit before tax£2,637m
Earnings per share0.88p
Cashflow per share16.70p
Cash per share83.57p

Shore: don’t miss out on Tesco’s rally

A ‘warmer’ trading update and unconditional clearance of the Booker acquisition has left Tesco (TSCO) in a positive position according to Shore Capital, which still rates the shares a ‘buy’ despite admitting its stance may be ‘premature’.

Analyst Clive Black retained his ‘buy’ recommendation on the shares, which fell 4.4% to 202.5p yesterday.

‘We see material valuation rating compression for Tesco stock out to 2020, albeit that contraction is back-end weighted... we continue to believe that we may be a little premature on our upgrade [to ‘buy’],’ he said.

‘However, we also believe that it is better to be too early than to miss the anticipated appreciation of Tesco’s shares.’

‘The underlying progress is undeniable and the direction of travel clear’.

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Key stats
Market capitalisation£4,882m
No. of shares out1,625m
No. of shares floating1,598m
No. of common shareholdersnot stated
No. of employees85209
Trading volume (10 day avg.)8m
Turnover£10,622m
Profit before tax£1,269m
Earnings per share7.18p
Cashflow per share42.54p
Cash per share29.73p

Hargreaves: M&S turnaround plan may be too late

High street stalwart Marks & Spencer (MKS) saw sales fall in the third quarter and Hargreaves Lansdown believes the turnaround plan may be too late to help.

The company reported UK like-for-like sales fell 1.4% in the third quarter, news that pushed the shares 6.7% lower to 302.3p yesterday.

Analyst Laith Khalaf said the figures were ‘disappointing’ especially in its food division, and online, which had been the ‘bright light of the M&S empire’.

He added that online sales growth looked ‘pretty feeble when compared to the wider market’.

‘It’s still early days in the M&S turnaround plan, however the risk is by the time M&S gets up to speed, the rest of the pack might have disappeared out of sight,’ he said.

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Key stats
Market capitalisation£770m
No. of shares out341m
No. of shares floating304m
No. of common shareholdersnot stated
No. of employees9928
Trading volume (10 day avg.)m
Turnover£398m
Profit before tax£100m
Earnings per share19.27p
Cashflow per share22.47p
Cash per share0.88p

Peel Hunt admits defeat and downgrades Card Factory

Peel Hunt has downgraded Card Factory (CARD) on a Christmas update presenting ‘serious concerns’ about the earnings potential of the business.

Analyst Jonathan Pritchard downgraded his recommendation from ‘buy’ to ‘hold’ and reduced the target price from 400p to 240p. The shares slumped 18.3% to 230.6p yesterday.

‘The weakness in card sales at Christmas is disappointing but worse still is the company’s view that this will persist, with non-card picking up a bit of the slack, albeit at lower gross margins,’ he said.

‘Our forecast is coming back by about 10% but the notion of a double-digit special [dividend] is history for the time being and even though the competition will be in disarray, it’s hard to see forecast momentum turning here on a 18-month view.’

Pritchard added that ‘we have to admit, we got this one wrong’.

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Key stats
Market capitalisation£641m
No. of shares out459m
No. of shares floating208m
No. of common shareholdersnot stated
No. of employees2506
Trading volume (10 day avg.)m
Turnover£701m
Profit before tax£-6m
Earnings per share-1.57p
Cashflow per share-0.33p
Cash per share6.98p

AO gaining shares in tough markets, says Jefferies

Online white goods retailer AO World (AO) is continuing to gain share in a tough market, according to Jefferies.

Analyst Niraj Amin retained his ‘hold’ recommendation and target price of 120p on the shares, which surged 7.8% to 141.2p yesterday.

‘Against a challenging UK market, AO has gained share with 11.4% growth in AO.com sales,’ he said, adding that this was slightly below his estimate of 13%.

‘European sales continue to grow healthily at 58% ex-foreign exchange, driven mostly from natural sources. Encouragingly for AO, the UK market has stabilised and the strategy is on track. However, given an uncertain UK consumer environment, we remain at “hold”.’

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Key stats
Market capitalisation£6,235m
No. of shares out1,012m
No. of shares floating982m
No. of common shareholdersnot stated
No. of employees6193
Trading volume (10 day avg.)3m
Turnover£4,650m
Profit before tax£812m
Earnings per share60.69p
Cashflow per share61.11p
Cash per share77.87p

Liberum: Barratt’s divi not safe as houses

The housing market is still showing resilience but Barratt Developments (BDEV) is Liberum’s least preferred housebuilder due to its low margins.

Analyst Charlie Campbell retained his ‘sell’ recommendation and target price of 575p on the shares despite a first-half update that showed ‘the housing market’s resilience continued through the end of 2017’. The shares fell 3.1% to 614.8p yesterday.

‘Barratt is our least preferred housebuilder due to relatively low margins and as we see its dividends as least safe among the returners,’ said Campbell. ‘Better value in the sector in smaller, growing business Bellway, Galliford Try, Gleeson, and Redrow.’

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