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The Expert View: Centrica, Barclays and Purplebricks

Our daily roundup of analyst commentary on shares, also including Serco and Morgan Sindall.

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Key stats
Dividend yield 8.8%
Market capitalisation £6,893m
No. of shares out 5,697m
No. of shares floating 5,685m
No. of employees 34,901
Trading volume (10 day avg.) 18.4m
Turnover £28,023m
Profit before tax £2,127m
Earnings per share 5.97p
Cashflow per share 22.16p
Cash per share 51.23p

Centrica dividend beginning to creak, says Hargreaves

British Gas owner Centrica (CNA) has delivered higher profits this year but Hargreaves Lansdown says the warning on cashflows is the ‘real story’.

Higher profits from the offshore exploration and production business helped Centrica’s operating profit rise 12% to £1.4 billion. However, cashflow next year is expected to be lower.

Analyst George Salmon said the higher numbers were ‘just a function of the rising oil price’ and ‘the fact the group has had to warn investors about next year’s cashflows is the real story, and has potential to impact the dividend longer term’.

He said that the dividend - which has been held at 12p -  was ‘starting to creak’ with Centrica ‘increasingly relying on cost cutting and disposals to prop up the payment’.

‘Neither can continue forever. We wouldn’t be surprised if a cut was around the corner,’ said Salmon.

The shares tumbled 13.5% to 118.8p yesterday.

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Key stats
Dividend yield 2.8%
Market capitalisation £27,621m
No. of shares out 17,134m
No. of shares floating 17,055m
No. of employees 79,900
Trading volume (10 day avg.) 26.5m
Turnover £13,631m
Profit before tax £7,937m
Earnings per share 9.71p
Cashflow per share 20.74p
Cash per share 1,002.83p

Barclays shows dividend promise, says Interactive Investor

Barclays’ (BARC) dividend promise is encouraging investors to look beyond conduct and litigation issues, says Interactive Investor.

The bank announced an increased dividend, placing the shares on a projected yield of around 5%, accompanied by a pledge for further returns to shareholders.

Analyst Richard Hunter said the numbers were ‘well received’ despite the bank continuing to suffer from litigation and conduct fines.

Barclays also disclosed a provision for economic uncertainty arising from Brexit and the investment bank has seen income decline on ‘a treacherous year in the markets’.

‘Investors are choosing to look through the litigation and conduct issues which have blighted these numbers, and focus instead on the progress the bank is making,’ said Hunter.

‘This is in contrast to the share price performance, which has suffered a 20% decline over the last year. As such, with brighter prospects emerging, the general market view remains positive and comes in at a “buy”.’

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Key stats
Dividend yield 0%
Market capitalisation £361m
No. of shares out 303m
No. of shares floating 198m
No. of employees 569
Trading volume (10 day avg.) 0.3m
Turnover £88m
Profit before tax £-26m
Earnings per share -11.02p
Cashflow per share -10.40p
Cash per share 50.64p

Peel Hunt places Purplebricks ‘under review’

Peel Hunt has placed Purplebricks (PURP) ‘under review’ after the onlie estate agent cut full-year revenue forecasts and announced the departure of its UK and US bosses.

Analyst Gavin Jago put his ‘buy’ recommendation and target price of 320p ‘under review’.

He said ‘a number of headwinds’ in the second half of the financial year meant 2019 revenues are expected to be lower in the UK, Australia, and US.

‘While there will be a tighter focus on capital allocation and advertising spend in the near term, we expect 2019 group losses to be higher than previously forecast,’ he said.

‘Given the tough trading backdrop in its key regions and the recent changes to customer propositions in the US and Australia, revenue visibility is low and the near-term growth outlook has weakened.’

The shares tumbled 25% to 123.5p yesterday.

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Key stats
Dividend yield 0%
Market capitalisation £1,328m
No. of shares out 1,099m
No. of shares floating 1,076m
No. of employees 42,764
Trading volume (10 day avg.) 2.2m
Turnover £2,951m
Profit before tax £60m
Earnings per share -0.76p
Cashflow per share 3.55p
Cash per share 10.20p

Brighter prospects for Serco, flags Shore Capital

Outsourcing group Serco (SRP) has had problems in recent years but there are ‘brighter prospects’ for the reformed group, says Shore Capital.

Analyst Robin Speakman retained his ‘buy’ recommendation on the shares, which rose 5.2% to 121p yesterday.

Full-year results came in in line with Speakman’s forecasts and there is an improving outlook for 2019, with revenue expected to be £100 million higher in a range of £2.9 billion to £3 billion.

‘Overall, the results are pleasing to us, in the context of the difficulties of the past few year. We expect to adjust our forecasts upgrading to the new revised guidance,’ he said.

‘We see brighter prospects ahead for this substantially reformed group.’

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Key stats
Dividend yield 4.2%
Market capitalisation £517m
No. of shares out 45m
No. of shares floating 38m
No. of employees 6,409
Trading volume (10 day avg.) 0m
Turnover £2,793m
Profit before tax £70m
Earnings per share 112.69p
Cashflow per share 127.31p
Cash per share 494.59p

Morgan Sindall valuation doesn’t reflect the quality, says Numis

The valuation of construction company Morgan Sindall (MGNS) does not reflect the ‘quality and growth profile’ of the business, says Numis.

Analyst Howard Seymour retained his ‘buy’ recommendation and target price £15.65 on the shares, which were trading at £11.34 yesterday.

He noted the strong profit growth in construction and a ‘major scope for recovery’ in partnership housing and urban regeneration.

‘This should drive double-digit earnings growth from 2020 onwards, but in our view also merits a higher valuation going forward as longer term, more predictable profit streams become the drivers,’ said Seymour.

‘Strength of balance sheet, underpinning investment in asset-intensive areas, adds an additional dimension to the quality of earnings argument. A sub eight times price/earnings [ratio] and yield of 5% this year clearly does not reflect the quality and growth profile of the group.’

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