Stocks to watch: CYBG, Boohoo, Wood Group, NMC, Siemens, Shell

Thursday 13:00 BST

What’s happening

● CYBG dropped more than a fifth after the bank warned that a late rush of payment protection insurance compensation claims would cost an extra £300m to £450m. The owner of Clydesdale Bank and Virgin Money reported an uptick in industry-wide claims and information requests in the run-up to the August 29 PPI deadline.

“This charge raises questions around CYBG’s capital, as well as the outlook for dividends and the targeted growth agenda,” said Barclays. The erosion of cash buffers “firmly eliminates the prospect of surplus capital returns, which we believe some investors had been hoping for, and may require some moderation in market expectations for dividend”. Barclays also questioned whether “arguably thin” capital levels might force CYBG to reduce the pace of investment and slow the growth of its lending book.

● Boohoo jumped after the online clothes retailer raised full-year sales targets and left margin guidance unchanged. In a brief unscheduled trading update, Boohoo said trading had remained strong in its fiscal second quarter so full-year sales growth would be between 33 per cent and 38 per cent, up from the 25 per cent to 30 per cent guidance previously forecast.

“For a management team not known for overpromising, raising revenue guidance 8 per cent points at this point is a powerful signal of confidence,” said Numis Securities. It repeated “buy” advice on a target raised to 360p a share.

“The simplicity of the business model helps Boohoo avoid many of the pitfalls and challenges of online retail. At the same time, there are significant advantages to scale, and Boohoo is fast developing barriers to successful replication. As [Zara owner] Inditex have already evidenced for this type of business model, having better established sourcing, infrastructure, data and expertise enables a better customer offer than any peer, underpinning growth in both existing and new brands and markets.”
Numis

Sellside stories

● Jefferies upgraded Wood Group, the oil services company, from “underperform” to “hold” with an unchanged 370p-a-share target.

The recently announced sale of Wood’s nuclear business, in combination with reduced exceptional items, should mean net debt next year will finally be cut to a target of 1.5 times trading profit, Jefferies said.

The broker continued to forecast that Wood’s revenue group would fall short of management’s 5 per cent guidance this year, partly in response to newly disclosed metrics showing its reliance on joint ventures, and warned that a lack of organic deleveraging left the dividend exposed. However, with the group’s shares near 10-year lows, Jefferies said there was support for its valuation.

● Citigroup repeated “buy” advice on NMC Health, the United Arab Emirates-based hospital operator, with its target share price raised from £34.50 to to £36.50.

The case against NMC has been “substantially undermined” in recent weeks yet short positions remain near record highs, representing more than 25 per cent of the stock’s free float, Citi said. Bearish warnings about debt, working capital and organic sales growth were becoming “increasingly difficult to argue”, added Citi.

Improvements to corporate governance were being implemented and the overhang of a stock pledge by one of its key shareholders had been reduced, it said. Though macro and expat trends in the UAE remained a concern, it was difficult to look past NMC’s compound annual earnings growth of 24 per cent and its valuation of just 17 times 2020 earnings, Citi concluded.

● JPMorgan Cazenove downgraded Purplebricks, the branchless estate agent, from “overweight” to “neutral” with a 145p-a-share target price.

“Rightly so, management is now focused on the UK operations with Canada providing a free option . . . The structural growth opportunity for the UK business remains large and online agents will continue to take share in the next few years. However, with housing transactions stuck at historic lows, any property agent operation (no matter if online or offline) suffers materially — and a major improvement in underlying market developments is needed to lift estimates and drive the shares. This appears unlikely to occur in the short term given current political developments in the UK and we see plenty of time for investors to revisit the investment case at a later stage.”
JPMorgan

Having announced plans to shut down US and Australian operations, Purplebricks was likely to rejig its pricing “moderately towards a more success-based model” to support UK trading profit growth of about 35 per cent annually, JPMorgan said. Nevertheless, it said the stock’s valuation “does not look overly compelling” with the UK business at an enterprise value excluding cash of 30 times 2020 trading profit.

● In brief: ABB cut to “hold” at Deutsche Bank; Acerinox raised to “buy” at Deutsche Bank; Aéroports de Paris raised to “buy” at Société Générale; Alten cut to “hold” at Berenberg; BP cut to “neutral” at Redburn; CRH raised to “buy” at Deutsche Bank; DNO raised to “buy” at Stifel; Eni cut to “neutral” at Redburn; Essity cut to “neutral” at UBS; HeidelbergCement raised to “buy” at Deutsche Bank; Kainos raised to “hold” at Panmure Gordon; LafargeHolcim cut to “hold” at Deutsche Bank; OMV cut to “neutral” at Redburn; Premier Oil cut to “hold” at Stifel; Repsol cut to “sell” at Redburn; Saipem cut to “neutral” at Goldman Sachs; Sandvik raised to “buy” at Deutsche Bank; Shell cut to “sell” at Redburn; Siemens raised to “buy” at Deutsche Bank; Traton rated new “hold” at Société Générale; UCB raised to “equal-weight” at Barclays; Zumtobel raised to “hold” at Berenberg.

Global stocks rally as US-China agree to trade talks

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