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The Expert View: Ocado, Sports Direct and Serco

Our daily roundup of analyst commentary on shares, also including Bunzl and TUI.

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Key stats
Dividend yield 0%
Market capitalisation £5,594m
No. of shares out 692m
No. of shares floating 430m
No. of employees 12,799
Trading volume (10 day avg.) 1.6m
Turnover £1,464m
Profit before tax £85m
Earnings per share 0.16p
Cashflow per share 11.53p
Cash per share 24.54p

 

Ocado’s ‘explosive growth’ yield results

‘Explosive growth’ is beginning to feed through to results at Ocado (OCDO), says Interactive Investor.

The online supermarket is expecting to deliver 12% growth in retail revenue and a 13% hike in average orders per week this year which analyst Richard Hunter said ‘is further confirmation that plans are coming together’.

The shares have taken a recent ‘pause for breath’, falling 14%, but Hunter said ‘the picture over the last year is rather more indicative of the company’s progress’.

‘In that period, the shares have risen 126%, compared to a decline of 8.2% for the wider FTSE 100,’ he said.

‘This may in turn have resulted in the valuation being seen up with events for the moment, with the market consensus having recently softened to a “hold”, albeit a strong one.’

The shares rose 1.9% to 808.6p yesterday.

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Key stats
Dividend yield 0%
Market capitalisation £1,359m
No. of shares out 537m
No. of shares floating 189m
No. of employees 17,559
Trading volume (10 day avg.) 0.5m
Turnover £3,360m
Profit before tax £345m
Earnings per share 4.62p
Cashflow per share 31.45p
Cash per share 67.04p

 

Hargreaves Lansdown: Sports Direct is idealistic

Sports Direct (SPD) is raising its bet on the high street in the midst of a cyclical downturn, which Hargreaves believes is ‘positively quixotic’.

The sportswear retailer reported a 26.8% fall in underlying profit before tax to £64.4 million in the 26 weeks to 28 October, suffering a £31.5 million hit from House of Fraser.

Laith Khalaf said the core Sports Direct business was holding up ‘pretty well’ but House of Fraser was ‘a fly in the ointment’, which was ‘only to be expected given the collapse of the department store’.

The long term success of the acquisition of House of Fraser and Evans Cycles, and a stake in Debenhams, will be the ability for them to make a contribution to the bottom line, he said.

‘Raising Sports Direct’s already substantial bet on the high street would look like a brave call in a cyclical downturn, but in the structural decline we are seeing on the back of the digital shopping revolution, it looks positively quixotic,’ said Khalaf.

The shares fell 7.9% to 254.5p yesterday.

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Key stats
Dividend yield 0%
Market capitalisation £1,068m
No. of shares out 1,099m
No. of shares floating 1,076m
No. of employees 42,764
Trading volume (10 day avg.) 2.1m
Turnover £2,951m
Profit before tax £60m
Earnings per share -0.76p
Cashflow per share 3.55p
Cash per share 10.20p

 

Liberum upgrades stronger Serco

Liberum has upgraded Serco (SRP) on the back of a stronger balance sheet at the outsourcing group.

Analyst Joe Brent upgraded his recommendation from ‘sell’ to ‘hold’ and increased the target price from 80p to 105p after a trading statement guiding profit in line but earnings per share ahead due to tax this year. The shares jumped 9% to 97.4p yesterday.

Brent said despite headwinds from a tough UK market and a weak Middle East, the order book was up and outsourcing strong in the US due to increased defence spending for 2020.

‘The valuation is still demanding, but [we increase the] target price from 80p to 105p to reflect our upgrade and a stronger balance sheet,’ he said.

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Key stats
Dividend yield 2%
Market capitalisation £8,192m
No. of shares out 336m
No. of shares floating 329m
No. of employees 17,595
Trading volume (10 day avg.) 1m
Turnover £8,581m
Profit before tax £621m
Earnings per share 93.50p
Cashflow per share 132.01p
Cash per share 99.31p

 

Shore Capital expects long-term growth at Bunzl

Shore Capital believes there are strong long-term growth prospects at outsourcing business Bunzl (BNZL) thanks to its stable margins in a mixture of areas.

Analyst Robin Speakman retained his ‘buy’ recommendation on the shares, which rose 1.2% to £24.35 yesterday.

Revenue growth at the company is 8% to 9% this year, split between organic growth and acquisitions, although foreign exchange movements had an impact, according to guidance from the company.

Speakman said this was in line with his expectations and believes there will be ‘stable margins in the mix across geographies and verticals’.

‘We retain a “buy” stance on Bunzl, reflecting our view of strong long-term growth prospects,’ he said.

 

 

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TUI proving doubters wrong, says AJ Bell

TUI (TUIT) is proving it is not going the way of rival Thomas Cook by delivering a fourth consecutive year of underlying earnings growth, says AJ Bell.

Analyst Russ Mould said the ‘diverging fortunes’ of the travel groups shows that ‘anyone expect TUI to follow in the footsteps of its sector peer Thomas Cook with a profit warning will be severely disappointed’.

‘There is clear evidence that consumers increasingly want experiences over material goods,’ said Mould.

‘TUI has spotted this trend and repositioned its proposition accordingly...TUI is now curating a whole experience. It’s a clever move and one that Thomas Cook may look at in envy.’

The shares rose 5.6% to £12.03 yesterday.

 

 

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