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The Expert View: Ocado, Asos and Kier

Our daily roundup of analyst commentary on shares, also including TP Icap and Polypipe.

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Key stats
Dividend yield 0%
Market capitalisation £8,292m
No. of shares out 692m
No. of shares floating 424m
No. of employees 14,163
Trading volume (10 day avg.) 1.5m
Turnover £1,599m
Profit before tax £58m
Earnings per share -6.85p
Cashflow per share 6.94p
Cash per share 59.01p

Ocado can scale fresh heights, says Interactive Investor  

Ocado (OCDO) shares may be up with events but Interactive Investor says there is no reason to think they have hit their peak.

The shares rose 4.2% to a record high of £11.96 yesterday as the online supermarket reported an 11% rise in revenues in the first quarter and downplayed the impact of a fire at its main warehouse in Andover in February.

Analyst Richard Hunter said with the shares up 355% over two years ‘it is perhaps for this reason that the current market consensus for the shares comes in at a “hold”, suggesting that investors believe that the share price is up with events’.

‘Even so, there is little reason to believe at this point that Ocado has hit its pinnacle,’ he added.

‘The scale and speed of Ocado’s growth hitherto has set the bar high in terms of market expectations, and as such the recently announced Marks & Spencer joint venture came at an opportune time.’

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Key stats
Dividend yield 0%
Market capitalisation £2,466m
No. of shares out 84m
No. of shares floating 56m
No. of employees 4,386
Trading volume (10 day avg.) 0.6m
Turnover £2,417m
Profit before tax £160m
Earnings per share 98.01p
Cashflow per share 162.96p
Cash per share 51.06p

Hargreaves: Asos sales up but not by enough

Asos (ASOS) may have delivered 13% sales growth in the second quarter but it’s not good enough for the fast-growing online fashion retailer, says Hargreaves Lansdown.

Analyst Laith Khalaf said it may seem ‘churlish’ to complain about the level of growth, especially in retail, but ‘Asos is a fast-growing online player targeting millennials, which isn’t bogged down in the problems besetting the UK high street’.

‘The market had come to expect 25% sales growth a year from Asos, but the company only expects 15% this financial year,’ he said. ‘Worse, it’s now fallen behind that target in both its first and second quarter, and that’s with a currency tailwind which can flip at any time.’

Khalaf said there were ‘high hopes for growth baked in’ to the business and it needed to deliver or ‘the share price will come under even more pressure’.

‘Investors will be hoping this is just a stumble, rather than a fall from grace,’ he said.

The shares fell 9.6% to £29.08 yesterday.

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Key stats
Dividend yield 14%
Market capitalisation £803m
No. of shares out 162m
No. of shares floating 155m
No. of employees 20,064
Trading volume (10 day avg.) 1m
Turnover £4,220m
Profit before tax £145m
Earnings per share 88.27p
Cashflow per share 145.26p
Cash per share 348.98p

Kier needs a steady hand, says AJ Bell

Construction outsourcing business Kier (KIE) needs a ‘steady hand’ to guide it through choppy waters, says AJ Bell.

Kier will be hoping Andrew Davies, appointed yesterday to lead the business following the ousting of Haydn Mursell in January, will rise to that challenge.

Analyst Russ Mould said Davies’ plan for the company ‘sounds simple on paper’ but could be ‘tricky to execute’ as he looks to increase cashflow, reduce debt, and simplify the business.

‘Borrowings were recently revised upwards, and the company completed a poorly received rights issue back in December,’ said Mould.

Mould added that Davies looked well qualified ‘as he previously headed up Kier’s family-owned peer Wates Group, winning awards along the way, and spent decades at industrial heavyweight BAE Systems’.

The shares rose 2.1% to 494.1p yesterday.

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Key stats
Dividend yield 5.6%
Market capitalisation £1,820m
No. of shares out 563m
No. of shares floating 560m
No. of employees 5,128
Trading volume (10 day avg.) 1.6m
Turnover £1,757m
Profit before tax £303m
Earnings per share 11.20p
Cashflow per share 23.46p
Cash per share 260.23p

Shore Capital ‘unenthused’ by TP Icap

TP Icap (TCAPI) has reported full-year results slightly ahead of expectations but Shore Capital sees few sources of bottom-line growth at the interdealer broker.

Analyst Paul McGinnis retained his ‘hold’ recommendation on the stock ‘in the absence of any acceleration in top-line growth’ that leaves the ‘remainder of the back office saving as the only meaningful source of bottom-line growth’.

‘As such we remain unenthused by the investment case, but think the rating does not adequately reflect this,’ he said.

‘We therefore stay with a rather dull “hold” recommendation and see more attractive risk/reward scenarios elsewhere in the diversified financials. We highlight the likes of Polar Capital and Man Group.’

The shares rose 6.2% to 322.3p yesterday.

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Key stats
Dividend yield 2.6%
Market capitalisation £794m
No. of shares out 200m
No. of shares floating 184m
No. of employees 2,925
Trading volume (10 day avg.) 0.4m
Turnover £412m
Profit before tax £88m
Earnings per share 22.48p
Cashflow per share 32.67p
Cash per share 17.89p

Peel Hunt downgrades Polypipe after strong share run

Peel Hunt has downgraded Polypipe (PLP) following a strong run in the piping manufacturer’ shares.

Analyst Gavin Jago downgraded his recommendation from ‘buy’ to ‘add’ with a target price of 455p on the shares, which fell 6.1% to 406.3p yesterday.

Jago said that while the business had outperformed the wider UK construction market, ‘a very strong pick up in revenues in the second half… led to some operational inefficiencies and, combined with some customer mix changes, saw the margin slip by 0.5% with profit before tax slightly lower than expectations,’ said Jago.

‘These issues have now been largely worked through and trading in the new year has started well with the group set to deliver further growth over the next few years.’

He added that profit and earnings figures for this year were unchanged but the ‘strong run in the shares’ had forced his hand in downgrading his recommendation.

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