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View the rest of this gallery online at http://citywire.co.uk/money/gallery/a998326


Our daily roundup of analyst commentary on shares, also including Informa and Shawbrook.

Standard Aberdeen merger relieves cost pressures

The mega-merger announced by Standard Life (SL) and Aberdeen (ADB) will see the pressure taken off both companies’ bottom line, says Hargreaves Lansdown.

The asset managers announced plans for a merger that will see the creation of one of the largest global active management companies, running £660 billion for clients in 80 countries.

Under the merger, Standard Life shareholders will own two-thirds of the combined group and Aberdeen the remainder. If shareholders give the deal the go-ahead, the merger is expected to complete in the third quarter.

The companies expect £200 million of annual cost synergies within three years of the deal. Shares in Standard Life gained 5.6% to close 21p higher at 399p on Monday. Shares in Aberdeen advanced 4.8%, up 14p at 300p on the day.

‘This merger is a marriage of the old and the new, both in terms of the companies’ heritage and their main areas of strength,’ said Laith Khalaf, analyst at Hargreaves Lansdown.

‘In particular, Aberdeen’s emerging markets focus dovetails well with Standard Life’s capabilities in developed markets, through there are considerable areas of overlap between the two fund groups, particularly in multi-asset, fixed income and property strategies.’

Khalaf said Standard Life would bring ‘some stability’ for Aberdeen, which has seen 15 quarters of consecutive outflows and will benefit from Standard Life’s distribution network.

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Key stats
Market capitalisation £5,601m
No. of shares out 824m
No. of shares floating 823m
No. of common shareholders not stated
No. of employees 6570
Trading volume (10 day avg.) 3m
Turnover £1,212m
Profit before tax £171m
Earnings per share 24.33p
Cashflow per share 41.32p
Cash per share 4.87p

Informa facing slowdown, says Liberum

Business-to-business information group Informa (INF) could be hit by some of the same problems facing US educational publishers, according to Liberum.

Analyst Ian Whittaker reiterated his ‘hold’ recommendation and target price of 715p on the stock, which added 6.75p to close 1% up at 680p yesterday following full-year results.

‘Full-year organic revenue growth missed expectations, although earnings were in line, due to weakness at academic and knowledge, and networking in particular, and comments on softness in the academic books market is likely to strengthen concerns that Informa might be facing some of the problems seen at other US higher education publishers such as Pearson,’ he said.

‘Comments on ongoing free cashflow also suggest more investment moving forwards than anticipated. We continue to prefer UBM for exposure to events.’

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Key stats
Market capitalisation £4,053m
No. of shares out 1,000m
No. of shares floating 987m
No. of common shareholders not stated
No. of employees 156535
Trading volume (10 day avg.) 4m
Turnover £9,251m
Profit before tax £215m
Earnings per share 21.40p
Cashflow per share 49.16p
Cash per share 36.80p

Jefferies: Royal Mail pension problems weigh

Pension problems at Royal Mail (RMG) are coming to a head and there is a risk to the downside, says Jefferies.

Analyst David Kerstens retained his ‘underperform’ recommendation and target price of 360p on the stock, commenting: ‘Royal Mail’s pension reform consultation period closes on 10 March. Risks remain on the downside, as we estimate the current valuation reflects Royal Mail’s initial proposal, which is the best-case outcome in our view,’ he said.

‘The CWU (Communication Workers Union) will likely demand a better arrangement, as defined benefit [pension] members will lose 19-28% of their pensions, negatively impacting free cashflow and potentially dividends. Based on the CWU’s initial proposals, we estimate there’s a 50% downside risk.’

Pension reforms is not the only problem Royal Mail faces as key risk factors include ‘increasing e-substitution in a weaker UK economy, increasing competition from DHL in business-to-consumer parcels [and] competition fines’, said Kerstens.

The shares closed virtually unchanged at 404.5p.

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Key stats
Market capitalisation £799m
No. of shares out 251m
No. of shares floating 128m
No. of common shareholders not stated
No. of employees 556
Trading volume (10 day avg.) 2m
Turnover £214m
Profit before tax £59m
Earnings per share 24.14p
Cashflow per share 25.13p
Cash per share 208.34p

Reject Shawbrook takeover offer, says Shore Capital

Challenger bank Shawbrook (SHAW) has confirmed it has received a takeover offer from private equity firms, which is not a surprise to Shore Capital.

Analyst Gary Greenwood reiterated his ‘buy’ recommendation and ‘fair value’ price of 400p on the stock after Pollen Street and BC Partners offered 330p per share in cash, just two years after the bank floated on the stockmarket.

Pollen Street helped originally fund the bank with BC Partners. The shares were trading at 318.8p on Monday, up 19.6% since news of the offer broke on Friday.

‘The fact that Shawbrook has received a possible takeover offer does not come as a surprise to us given the depressed valuation of the group’s shares,’ said Greenwood. ‘That it has been received from a consortium including the group’s largest shareholder suggests frustration that the market is not willing to reflect fair value in the stock or concerns that the management team is not able to execute on a strategy that will deliver a materially higher share price.’

The offer represents a premium of 23% on the Thursday’s closing price but Greenwood said it did ‘not represent good value for shareholders, other than Pollen Street, and should be rejected by the board’.

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Key stats
Market capitalisation £1,066m
No. of shares out 111m
No. of shares floating 72m
No. of common shareholders not stated
No. of employees 23048
Trading volume (10 day avg.) m
Turnover £1,595m
Profit before tax £51m
Earnings per share 43.43p
Cashflow per share 103.86p
Cash per share 28.73p

Take profits in JD Wetherspoon, says Peel Hunt

Peel Hunt has downgraded pub chain JD Wetherspoon (JDW) and recommended investors take profits.

Analyst Douglas Jack downgraded his recommendation from ‘hold’ to ‘reduce’ with a target price of 925p on the stock, which slid 29p to close nearly 3% lower at 960p yesterday.

‘For the first-half results, due on Friday, we forecast profit before tax rising by 50% to £48 million due to total sales rising by 1.6% and margins rising by 1.7%,’ he said.

‘This largely reflects higher pricing, in our view, but with a price-sensitive customer base, management must be wary of pushing prices too far. Average drinks pricing is flat in the third quarter versus +5.4% in the first half, which should result in margins falling in the second half.’

Jack added that the shares had rerated to ‘9.4x embedded value/earnings – versus a 7.4x 10-year historic average’ and said ‘in our view, the positive first half 2017 results are priced in: we would take profits before the news flow weakens’.

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Key stats
Market capitalisation £17,500m
No. of shares out 4,374m
No. of shares floating 1,969m
No. of common shareholders not stated
No. of employees 6302
Trading volume (10 day avg.) 7m
Turnover £18,792m
Profit before tax £368m
Earnings per share 18.61p
Cashflow per share 25.13p
Cash per share 401.14p

Standard Aberdeen merger relieves cost pressures

The mega-merger announced by Standard Life (SL) and Aberdeen (ADB) will see the pressure taken off both companies’ bottom line, says Hargreaves Lansdown.

The asset managers announced plans for a merger that will see the creation of one of the largest global active management companies, running £660 billion for clients in 80 countries.

Under the merger, Standard Life shareholders will own two-thirds of the combined group and Aberdeen the remainder. If shareholders give the deal the go-ahead, the merger is expected to complete in the third quarter.

The companies expect £200 million of annual cost synergies within three years of the deal. Shares in Standard Life gained 5.6% to close 21p higher at 399p on Monday. Shares in Aberdeen advanced 4.8%, up 14p at 300p on the day.

‘This merger is a marriage of the old and the new, both in terms of the companies’ heritage and their main areas of strength,’ said Laith Khalaf, analyst at Hargreaves Lansdown.

‘In particular, Aberdeen’s emerging markets focus dovetails well with Standard Life’s capabilities in developed markets, through there are considerable areas of overlap between the two fund groups, particularly in multi-asset, fixed income and property strategies.’

Khalaf said Standard Life would bring ‘some stability’ for Aberdeen, which has seen 15 quarters of consecutive outflows and will benefit from Standard Life’s distribution network.

Key stats
Market capitalisation £5,601m
No. of shares out 824m
No. of shares floating 823m
No. of common shareholders not stated
No. of employees 6570
Trading volume (10 day avg.) 3m
Turnover £1,212m
Profit before tax £171m
Earnings per share 24.33p
Cashflow per share 41.32p
Cash per share 4.87p

Informa facing slowdown, says Liberum

Business-to-business information group Informa (INF) could be hit by some of the same problems facing US educational publishers, according to Liberum.

Analyst Ian Whittaker reiterated his ‘hold’ recommendation and target price of 715p on the stock, which added 6.75p to close 1% up at 680p yesterday following full-year results.

‘Full-year organic revenue growth missed expectations, although earnings were in line, due to weakness at academic and knowledge, and networking in particular, and comments on softness in the academic books market is likely to strengthen concerns that Informa might be facing some of the problems seen at other US higher education publishers such as Pearson,’ he said.

‘Comments on ongoing free cashflow also suggest more investment moving forwards than anticipated. We continue to prefer UBM for exposure to events.’

Key stats
Market capitalisation £4,053m
No. of shares out 1,000m
No. of shares floating 987m
No. of common shareholders not stated
No. of employees 156535
Trading volume (10 day avg.) 4m
Turnover £9,251m
Profit before tax £215m
Earnings per share 21.40p
Cashflow per share 49.16p
Cash per share 36.80p

Jefferies: Royal Mail pension problems weigh

Pension problems at Royal Mail (RMG) are coming to a head and there is a risk to the downside, says Jefferies.

Analyst David Kerstens retained his ‘underperform’ recommendation and target price of 360p on the stock, commenting: ‘Royal Mail’s pension reform consultation period closes on 10 March. Risks remain on the downside, as we estimate the current valuation reflects Royal Mail’s initial proposal, which is the best-case outcome in our view,’ he said.

‘The CWU (Communication Workers Union) will likely demand a better arrangement, as defined benefit [pension] members will lose 19-28% of their pensions, negatively impacting free cashflow and potentially dividends. Based on the CWU’s initial proposals, we estimate there’s a 50% downside risk.’

Pension reforms is not the only problem Royal Mail faces as key risk factors include ‘increasing e-substitution in a weaker UK economy, increasing competition from DHL in business-to-consumer parcels [and] competition fines’, said Kerstens.

The shares closed virtually unchanged at 404.5p.

Key stats
Market capitalisation £799m
No. of shares out 251m
No. of shares floating 128m
No. of common shareholders not stated
No. of employees 556
Trading volume (10 day avg.) 2m
Turnover £214m
Profit before tax £59m
Earnings per share 24.14p
Cashflow per share 25.13p
Cash per share 208.34p

Reject Shawbrook takeover offer, says Shore Capital

Challenger bank Shawbrook (SHAW) has confirmed it has received a takeover offer from private equity firms, which is not a surprise to Shore Capital.

Analyst Gary Greenwood reiterated his ‘buy’ recommendation and ‘fair value’ price of 400p on the stock after Pollen Street and BC Partners offered 330p per share in cash, just two years after the bank floated on the stockmarket.

Pollen Street helped originally fund the bank with BC Partners. The shares were trading at 318.8p on Monday, up 19.6% since news of the offer broke on Friday.

‘The fact that Shawbrook has received a possible takeover offer does not come as a surprise to us given the depressed valuation of the group’s shares,’ said Greenwood. ‘That it has been received from a consortium including the group’s largest shareholder suggests frustration that the market is not willing to reflect fair value in the stock or concerns that the management team is not able to execute on a strategy that will deliver a materially higher share price.’

The offer represents a premium of 23% on the Thursday’s closing price but Greenwood said it did ‘not represent good value for shareholders, other than Pollen Street, and should be rejected by the board’.

Key stats
Market capitalisation £1,066m
No. of shares out 111m
No. of shares floating 72m
No. of common shareholders not stated
No. of employees 23048
Trading volume (10 day avg.) m
Turnover £1,595m
Profit before tax £51m
Earnings per share 43.43p
Cashflow per share 103.86p
Cash per share 28.73p

Take profits in JD Wetherspoon, says Peel Hunt

Peel Hunt has downgraded pub chain JD Wetherspoon (JDW) and recommended investors take profits.

Analyst Douglas Jack downgraded his recommendation from ‘hold’ to ‘reduce’ with a target price of 925p on the stock, which slid 29p to close nearly 3% lower at 960p yesterday.

‘For the first-half results, due on Friday, we forecast profit before tax rising by 50% to £48 million due to total sales rising by 1.6% and margins rising by 1.7%,’ he said.

‘This largely reflects higher pricing, in our view, but with a price-sensitive customer base, management must be wary of pushing prices too far. Average drinks pricing is flat in the third quarter versus +5.4% in the first half, which should result in margins falling in the second half.’

Jack added that the shares had rerated to ‘9.4x embedded value/earnings – versus a 7.4x 10-year historic average’ and said ‘in our view, the positive first half 2017 results are priced in: we would take profits before the news flow weakens’.



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