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The Expert View: Lancashire, Reckitt Benckiser and WH Smith

Our daily roundup of analyst commentary on shares, also including SafeCharge and Scapa. 

by Michelle McGagh on Oct 10, 2017 at 05:00

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Key stats
Market capitalisation£1,338m
No. of shares out200m
No. of shares floating188m
No. of common shareholdersnot stated
No. of employees103
Trading volume (10 day avg.)1m
Turnover419m USD
Profit before tax118m USD
Earnings per share0.58 USD
Cashflow per share0.60 USD
Cash per share1.18 USD

Peel Hunt: Lancashire hurricane losses to result in divi cut

Hurricane losses will put earnings at Lancashire (LRE) into the red this year and the reinsurer may be forced to cut its special dividend, according to Peel Hunt.

Analyst Andreas van Embden retained his ‘add’ recommendation and target price of 690p on the stock after the insurer said it expected losses from the hurricane season to be within $106 million (£80.6 million) and $212 million compared with Peel Hunt’s estimated top range of $203 million. The shares rose 1% to 669p yesterday.

‘This is a material loss, and will pull earnings into the red this year,’ he said. ‘However, Lancashire’s capital position is healthy and assuming a cut in the special dividend we believe it has the flexibility to expand exposures.

‘We continue to favour Lancashire among the Lloyd’s names and believe the company has the highest gearing to a rising rate environment in the US property catastrophe reinsurance market.’

Key stats
Market capitalisation£48,623m
No. of shares out704m
No. of shares floating649m
No. of common shareholdersnot stated
No. of employees34700
Trading volume (10 day avg.)1m
Profit before tax£1,832m
Earnings per share256.48p
Cashflow per share288.81p
Cash per share109.27p

Berenberg says Reckitt Benckiser will bounce back

Recovery frustrations have led to a fall in Reckitt Benckiser (RB) shares but Berenberg said the headwinds can be worked through and growth can accelerate at the consumer goods group again.

Analyst Rosie Edwards reiterated her ‘buy’ recommendation and target price of £85.00 on the shares, which are down 10% over the last 12 months, taking the price-earnings ratio to what she said was a ‘trough level’. The shares were up 1.6% yesterday at £69.43.

‘Reckitt Benckiser’s recent share price performance is reflective of growing frustration among investors about the company’s top-line recovery, something to which we can relate, having expected to see an improvement in the third quarter of 2017, which will not materialise,’ she said.

Edwards said there was ‘little substance’ in conspiracy theories surrounding changes to the executive board and that the company’s ‘competitive advantage in innovation and health still exists, although suffering some knocks in 2016’.

‘Once the headwinds have worked through the system, we expect an acceleration in top-line growth, back to 4% by 2018,’ she said.

Key stats
Market capitalisation£2,275m
No. of shares out111m
No. of shares floating108m
No. of common shareholdersnot stated
No. of employees13769
Trading volume (10 day avg.)m
Profit before tax£108m
Earnings per share93.91p
Cashflow per share126.96p
Cash per share33.63p

WH Smith travelling in the right direction, says Deutsche Bank

WH Smith (SMWH) is benefiting from sales in its airport locations helping it to another year of profit, cash delivery and a possible buyback, says Deutsche Bank.

Analyst Warwick Okines retained his ‘hold’ recommendation and target price of £19.50 on the stock ahead of full-year results in which he expects the newsagent to report profit before tax of £138 million. The shares fell 19p to £20.46 yesterday.

‘As well as representing 61% of profits, travel should represent over half of group sales for the first time,’ said Okines.

‘Within travel, we expect international travel sales of £111 million and profits of £9 million, so about 6% of group profits. Looking ahead to 2018, in travel the focus is likely to be on international.’

The growth in travel is expected to provide the most upside risk for the shares but Okines added that ‘the main downside risks are a downturn in passenger travel or that high street cost and gross margin opportunities are insufficient to offset weakness in the printed news categories’.

Key stats
Market capitalisation£419m
No. of shares out147m
No. of shares floating43m
No. of common shareholdersnot stated
No. of employees344
Trading volume (10 day avg.)m
Turnover80m USD
Profit before tax20m USD
Earnings per share0.13 USD
Cashflow per share0.15 USD
Cash per share0.59 USD

Barclays initiates coverage of SafeCharge

Barclays has initiated coverage of payment solutions provider SafeCharge (SCHS) and believes there is long-term value if investors can see past a short-term transition.

Analyst Gerardus Vos initiated coverage with a ‘buy’ recommendation and a target price of 310p on the shares, which were up 1.2% at 288p yesterday.

‘As an online payment processor and acquirer, with a history of high growth, SafeCharge is seemingly attractive to investors looking to deploy the proceeds of recent sector consolidation,’ he said.

‘However, it is in the midst of a transition to reduce some high-risk exposure to improve its investment grade and this has resulted in two years of stalled earnings growth.’

Vos predicted that the company would continue to reduce its risk exposure and therefore his earnings forecasts were below consensus, but longer term there is value.

‘Longer-term we see value in the group, particularly if it deploys its substantial cash balance, sees a sell down by its majority shareholder or participates in ongoing sector consolidation,’ he said.

Key stats
Market capitalisation£693m
No. of shares out154m
No. of shares floating144m
No. of common shareholdersnot stated
No. of employees1364
Trading volume (10 day avg.)m
Profit before tax£18m
Earnings per share11.15p
Cashflow per share17.42p
Cash per share7.94p

Scapa entering a new phase of growth, says Numis

Numis has downgraded adhesive manufacturer Scapa (SCPA) after a strong performance but the ‘vast’ opportunities for the company should prompt a new phase of share growth.

Analyst Paul Cuddon downgraded his recommendation from ‘add’ to ‘hold’ with a target price of 475p on the shares, which fell 4.6% to 454p yesterday.

Following a capital markets day at which Scapa set out its strategy and mid-term aspirations, Cuddon said its ‘strong heritage in skin-friendly adhesives has positioned the company favourably in healthcare with strategic partnerships with leading channel partners’.

‘The opportunities in both [industrials and healthcare] divisions are vast, and with ever more competitive technologies, intellectual property, and turn-key solutions this is a stock entering a new phase of growth,’ he said.

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Look up the shares

  • Lancashire Holdings Ltd (LRE.L)
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  • Reckitt Benckiser Group PLC (RB.L)
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  • WH Smith PLC (SMWH.L)
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  • Scapa Group PLC (SCPA.L)
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  • SafeCharge International Group Ltd (SCHS.L)
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