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The Expert View: HSBC, Just Eat and Pearson

Our daily roundup of analyst commentary on shares, also including William Hill and Watkin Jones.

by Michelle McGagh on Jan 16, 2018 at 05:00

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Key stats
Market capitalisation£158,304m
No. of shares out19,995m
No. of shares floating19,926m
No. of common shareholdersnot stated
No. of employees232346
Trading volume (10 day avg.)22m
Turnover30,898m USD
Profit before tax13,760m USD
Earnings per share0.05 USD
Cashflow per share0.20 USD
Cash per share8.11 USD

HSBC a contrarian ‘buy’ for 2018, says Jefferies

Jefferies believes HSBC (HSBA) will be a ‘contrarian long for 2018’ as it predicts dividends to rise next year.

Analyst Joseph Dickerson retained his ‘buy’ recommendation and target price of 920p on the shares, which fell 7p to 784.9p yesterday.

‘We took stock of the backdrop in which HSBC operates and gained more conviction that consensus dividend per share will move towards our $0.66 level in 2019,’ he said.

‘The Hong Kong retail units are benefiting from rising Hibor [the inter-bank lending rate on the Hong Kong dollar] and the bank is taking market share in capital efficient areas such as Hong Kong and UK mortgages.’

Dickerson added ‘low stock-specific risk justifies valuation, rounding out the investment picture’.

Key stats
Market capitalisation£5,393m
No. of shares out680m
No. of shares floating586m
No. of common shareholdersnot stated
No. of employees1621
Trading volume (10 day avg.)2m
Profit before tax£112m
Earnings per share10.55p
Cashflow per share14.08p
Cash per share19.25p

Numis increases target price on Just Eat charge change

Just Eat (JE) has replaced its 50p credit and debit card charge with a 50p ‘service charge’ for everyone, which has led Numis to increase its target price.

Analyst Richard Stuber retained his ‘add’ recommendation and increased the target price to 948p, which he said represents 19% upside. The shares fell 1% to 790p yesterday.

‘EU legislation…prohibits companies charging customers surcharges for credit and debit card payments. As a consequence, Just Eat has removed the 50p surcharge and replaced it with a 50p service charge that encapsulates all customers – the 30% of cash customers will also now incur this fee,’ he said.

‘Rolling forward our discounted cashflow valuation to December 2018 and incorporating the changes, leads us to increase our target price to 948p. With 19% upside, we retain our “add” recommendation.’

Key stats
Market capitalisation£5,746m
No. of shares out800m
No. of shares floating792m
No. of common shareholdersnot stated
No. of employees32719
Trading volume (10 day avg.)4m
Profit before tax£647m
Earnings per share-286.82p
Cashflow per share-241.90p
Cash per share180.38p

Liberum: Pearson faces ‘tsunami’ of pricing problems

Educational publisher Pearson (PSON) faces additional headwinds from a competitor’s new pricing model on top of an already difficult backdrop, says Liberum.

Analyst Ian Whittaker retained his ‘sell’ recommendation but increased the target price from 330p to 380p. The shares rose 6.4p to 729.4p yesterday.

‘We expect Pearson to disappoint the market on 2018 guidance, which it will give at either the trading update or full-year results,’ he said.

‘2018 is shaping up to be another difficult year in US higher education and the recent move by number two player Cengage to offer an “all you can eat” pricing model threatens to introduce the tsunami of price deflation on top of volume declines and industry pressures.’

Key stats
Market capitalisation£2,875m
No. of shares out858m
No. of shares floating855m
No. of common shareholdersnot stated
No. of employees16286
Trading volume (10 day avg.)5m
Profit before tax£336m
Earnings per share18.80p
Cashflow per share28.70p
Cash per share24.29p

William Hill to be World Cup winners, says Hargreaves

Football’s World Cup will provide a boost for William Hill (WMH) this year but new rules in Australia are proving a difficulty for the bookmaker, says Hargreaves Lansdown.

William Hill confirmed in a trading update that momentum had been good since November and full-year operating profit for 2017 is expected to be 11% up on 2016 at £290 million. The shares were flat at 335p yesterday.

‘World Cup years are always big for the bookies,’ said analyst George Salmon. ‘With trading in the UK and US looking better, unlike the England football side, William Hill is going into 2018 with improved momentum.

But Salmon added there were some unfortunate parallels with the England cricket team.

‘Betting on credit has been banned in Australia, meaning that’s proving a difficult territory at the moment,’ he said. ‘This probably explains why the group entered talks with CrownBet about a possible sale of its Australian business.’

Key stats
Market capitalisation£527m
No. of shares out255m
No. of shares floating167m
No. of common shareholdersnot stated
No. of employees367
Trading volume (10 day avg.)m
Profit before tax£39m
Earnings per share1.99p
Cashflow per share2.25p
Cash per share18.87p

Watkin Jones delivers record results as boss steps down

Construction and development company Watkin Jones (WJG) has delivered record results but they were marred slightly by the announcement that chief executive Mark Watkin Jones is stepping down, says Peel Hunt.

Analyst Gavin Jago retained his ‘buy’ recommendation and target price of 230p on the stock, which tumbled 10.2% to 203p yesterday.

‘The group has reported record results with a 13% increase in earnings, in line with expectations,’ he said. ‘The student development business is supported by strong forward sales while build rent is starting to contribute with a growing pipeline,’ he said.

‘In a separate announcement, chief executive Watkin Jones is intending to stand down once a suitable successor has been appointed. The shares trade on a 2018 price/earnings of 14.6x with a 3.3% dividend yield and the group’s growth prospects remain strong.’

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  • HSBC Holdings PLC (HSBA.L)
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  • Just Eat PLC (JE.L)
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  • Pearson PLC (PSON.L)
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  • William Hill PLC (WMH.L)
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  • Watkin Jones PLC (WJG.L)
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