Interactive Investor

Shares round-up: Admiral, Rentokil, Melrose and LSE

3rd March 2022 15:22

Graeme Evans from interactive investor

It's been another bad day at the office for share prices whether results were good or bad. Our City reporter explains why these big names are moving sharply.

Big downward moves for shares in Admiral Group (LSE:ADM), Rentokil Initial (LSE:RTO) and Melrose Industries (LSE:MRO) showed investors taking no chances in the current climate, even though annual results from the trio offered plenty of reasons for optimism.

Admiral was the heaviest casualty, with its shares slumping as much as 15% at one stage to an 19-month low under 2,500p, after its guidance that profits will be lower this year as pandemic-era benefits such as reduced car insurance accident claims continue to unwind.

Turnover last year increased by 4% to £3.5 billion as customer numbers jumped 9% to 8.36 million and profits rose 26% to £769 million. Its final dividend for payment on 6 June is set to rise 37% to 118p a share, taking total returns to 577% over the past decade.

Peel Hunt said Admiral had delivered exceptional results in UK motor insurance over the past two years, leading to the FTSE 100-listed stock trading on a forward multiple of 19 times earnings and supported by a 6% yield.

While the broker said such a premium valuation is justified, it said this was “partially based on windfall profits, which should unwind in due course.”

Peel Hunt has a price target of 2,720p, whereas UBS had a neutral rating and 3,058p recommended price prior to today’s results.

Rentokil’s annual profits of £416.5 million were 17.3% higher on a year earlier and 2.7% ahead of consensus after the pest control and washrooms firm achieved better than anticipated margins. A final dividend of 4.3p a share is due to be paid on 18 May, resulting in a rise of 18.1% across the year to 6.39p a share.

Analysts at Stifel said: “Overall, we view this as a robust performance, with the outlook highlighting good financial progress in 2022. We are buyers and view Rentokil as a high quality defensive stock with strong positions in structurally attractive end-markets.”

Rentokil also forecast further operational and financial progress in 2022, with medium-term growth targets of between 6% and 9%. Despite the strong results and outlook, Renotkil continues to find it hard to shake off jitters about its expansion in North America following December’s deal to buy Terminix.

Shares rallied after recent results from Terminix, but have come under pressure today, falling below 500p again. Broker Jefferies has a price target of 675p, with Deutsche Bank at 630p.

GKN owner Melrose Industries upped its dividend by a third to 1p a share for payment on 20 May, but shares were 6.6p lower at 135.5p after the manufacturing turnaround firm dashed hopes for a further return of capital.

In September, it paid out £724 million to shareholders following two major business disposals and had promised more to come as long as trading conditions were right.

Melrose put the plans on hold today as a result of uncertainty over the knock-on effects for world markets from the Ukraine conflict.

The update came as Melrose reported better-than-expected results showing an underlying profit of £197 million as all its businesses returned to growth in 2021. It added that net debt of £3.4 billion taken at the time of the GKN acquisition had been repaid within four years.

Melrose said: “While the wider markets still remain below their pre-pandemic levels, there is a visible path to recovery.

“We have enjoyed a strong performance during the year, with a conservative balance sheet, reset cost bases for each of the businesses and another strong cash flow performance.”

The London Stock Exchange Group (LSE:LSEG) was among the worst performers in the FTSE 100 during 2021, but shares rallied 574p to 6,944p after today’s annual results.

Much of the recent weakness has been due to uncertainty caused by the acquisition of  data business Refinitiv. Chief executive David Schwimmer allayed some of those concerns today by revealing he is confident in meeting or beating all targets in relation to the integration.

He announced an additional £50 million of cost synergies, increasing the five-year target to at least £400 million a year. Adjusted earnings also rose 8.3% to £3.3 billion.

Schwimmer said: “We have produced a strong financial performance, have met or are ahead of all targets and have good momentum into 2022. All of our businesses produced good results and are well positioned in markets demonstrating strong growth.”

A final dividend of 70p a share is due for payment in May, resulting in a 27% increase in  the overall 2021 dividend to 95p a share.

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