The Expert View: BHP Group, WH Smith and Gamma Communications


Our daily roundup of analyst and fund manager commentary on shares, also including Victrex & Safestore.

Key stats
Market Capitalisation £47,511m
Number of Shares Out 2,112m
Volume (90 day Avg.) 4.74m
Cash Per Share 1.67 USD

BHP moves from carbon victim to winner, says AJ Bell

BHP Group (BHP) has switched from being a potential victim of the energy transition to being a beneficiary, says AJ Bell.

BHP and other metals-focused miners could do well on the path to net zero as ‘the commodities they mine and trade are required to build the wind turbines and electric vehicle components required if the world is to wean itself off fossil fuels’, said investment director Russ Mould.

‘In the near term, miners may enjoy some additional benefit as global governments attempt to boost their recoveries from the pandemic by investing in large infrastructure projects,’ he said.

‘BHP has already benefited hugely from Chinese demand for iron ore, a key component in the manufacture of steel.’

However, Mould noted that BHP also has a petroleum business which could ‘become a fly in the ointment in the future’ as the world decreases its reliance on the black stuff.

Shares in BHP closed up 1.5%, or 33p, at £22.61 on Tuesday.  

Key stats
Market Capitalisation £1,988m
Number of Shares Out 115m
Volume (90 day Avg.) 0.5m
Cash Per Share 82.57p

WH Smith shares are cheap, says Peel Hunt

WH Smith (SMWH) looks cheap despite its high debt, according to broker Peel Hunt, which says the company could sell Funky Pigeon to relieve some of that debt burden.

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Analyst Jonathan Pritchard retained his ‘buy’ recommendation and target price of £20.00 on the stock, which closed down 2.3%, or 40p, at £16.99 on Tuesday.  

Pritchard compared WH Smith-owned Funky Pigeon to Moonpig (MOON), which soared after floating on the stock market, and said the valuation of the latter means ‘even applying a lower multiple to [Funky Pigeon’s] earnings gets the valuation to over £300m’.

‘WH Smith does not have a day-to-day liquidity problem, but it is heavily indebted,’ he said.

‘It has ambition to be a bigger global travel player. Good companies may come up for grabs worldwide and debt may hinder its plans. Funky Pigeon is non-core and a disposal of some sort would give WH Smith a chance to get back onto a deal-making front foot.’

The analyst added that for now the ‘shares are cheap’.

Key stats
Market Capitalisation £1,514m
Number of Shares Out 95m
Volume (90 day Avg.) 0.19m
Cash Per Share 34.49p

Liontrust duo see potential for Gamma

Citywire AA-rated Liontrust duo Anthony Cross and Julian Fosh believe telecoms provider Gamma Communications (GAMA) exemplifies the key attractions they look for in a stock.

The managers of the £609m Liontrust UK Growth fund said Gamma has three ‘core intangible strengths’ they look for: intellectual property, distribution network strength and high recurring income.

‘Over many years Gamma has developed market-leading proprietary technology solutions in the area of cloud communications…and hosted PBX systems, where it enjoys high market shares,’ they said in their January fund update.

‘The company goes to market predominantly via a network of channel partners built up over a long period of time, while the majority of revenue is earned on recurring monthly contracts.’

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Fosh and Cross added that after building up a leading position in the UK, the company ‘has expanded in recent years into mainland Europe, where it sees considerable further potential for growth’.

The shares closed down 0.3%, or 5p, at £16.25 on Tuesday.

Key stats
Market Capitalisation £1,990m
Number of Shares Out 86m
Volume (90 day Avg.) 0.3m
Cash Per Share 66.42p

Jefferies: Victrex positioned for recovery

Polymer supplier Victrex (VCT) is ‘well positioned’ for a recovery and Jefferies says conditions look increasingly favourable in its underlying markets.

Analyst Jaroslaw Pominkiewicz retained his ‘buy’ recommendation and target price of £26.75 on the stock, which closed down 1%, or 24p, at £22.76 on Tuesday.

He said his positive stance on the shares ‘remains unchanged’ and he believes the group ‘continues to be well-positioned for a medical-led recovery in the second half of 2021 and 2022’.

‘With increasingly favourable dynamics in several of its industrial markets more than offsetting slightly higher currency headwinds, we raise our full year 2021/full year 2022 earnings per share forecasts by 4% and 2%, which puts us…ahead of the…consensus.’

Key stats
Market Capitalisation £1,524m
Number of Shares Out 210m
Volume (90 day Avg.) 0.44m
Cash Per Share 30.61p

Safestore: Liberum cautious on rest of 2021

Safestore (SAFE) has had a ‘solid’ first quarter, but Liberum remains cautious about the impact of government support being taken away.

Analyst Jonathan Parker retained his ‘hold’ recommendation and increased the target price from 810p to 825p on the self storage company, which reported a 6.6% increase in revenue growth in the first quarter of its financial year. Its shares closed up 3.8%, or 30p, at 810p on Tuesday.

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‘Management is already guiding toward the top end of analyst earnings per share estimates and we increase our forecasts accordingly,’ said Parker.

‘But we remain mindful that Safestore operates with low levels of visibility, and remain cautious at this early stage of the year with regard to the effect on the business of government support schemes winding down.’

The analyst said the 23 times price-to-earnings ratio and 2.8% dividend yield mean the shares ‘trade broadly in line with fair value’.



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