Broker tips: Victoria, Lookers, PayPoint

Analysts at Berenberg raised their target price on flooring manufacturer Victoria from 770.0p to 1,000.0p on Monday, stating the group was "trading well" and "ready" for mergers and acquisitions.

Berenberg updated its numbers for Victoria to reflect its recent trading update and the completion of various refinancing actions taken in recent weeks, noting that with "significant capital" now raised but as yet unspent, future acquisitions would likely be financed from cash already on the balance sheet.

The German bank highlighted that over the coming months and years, it expects Victoria to return to significant M&A, with the company suggesting recently it has the capacity to acquire up to £100.0m EBITDA.

Berenberg also pointed out that given the "significant challenges" faced during the year, Victoria had benefited from a focus on strong cash flow management, quick remobilisations with strong service levels post-various lockdowns that supported market share gains, and the benefits of investment in logistics and manufacturing showing through in margin improvements.

"Trading has been incredibly resilient during the Covid-19 lockdowns, in our view," said the analysts, who also reiterated their 'buy' rating on the stock.

Liberum hiked its price target on car dealership chain Lookers to 90.0p from 45.0p on Monday, keeping their rating at 'buy' after a "much stronger-than-expected" first-quarter trading performance.

"This combined with the ongoing benefits of the restructuring lead to a 97% increase to our lower end of the range FY21E adjusted profit before tax forecast," the broker said.

"The new management team is performing well and we expect the consumer environment to be supportive of the ongoing recovery."

Liberum said that while FY20 results and a refinancing are still pending, it does not expect material issues with either.

Lookers said last week that it was expecting annual profit to be "materially" better than market expectations after a strong first quarter and with showrooms about to reopen.

Liberum noted that its FY21 pre-tax profit estimate was at the lower end of the range of at £17.8m.

"Clearly, much depends on how strongly consumer spending returns, but we remain positive, given the experience coming out of the last lockdown," the broker said.

Analysts at Canaccord Genuity raised their target price on payments provider PayPoint from 800.0p to 825.0p on Monday, stating a return to growth was "likely" as it highlighted some "material re-rating potential".

Canaccord said that following recent mergers and acquisitions, its in-depth analysis of PayPoint's upgraded portfolio suggested "early success" in the journey towards increasing focus on digital payments and services in order to outgrow the roughly one-third of revenues generated from declining cash transactions.

After high-single-digit net sales declines in the first nine months of 2021 due to Covid-19 and other factors, Canaccord now expects PayPoint to post broadly flat sales in its fourth quarter, followed by a return to growth in the 2022 full-year.

In the mid-term, the analysts estimate PayPoint's current portfolio can deliver "low-single-digit organic revenue expansion", driven by growth in card payments, parcel services, EPoS subscriptions and e-money.

The Canadian bank, which also stood by its 'buy' rating on the stock, highlighted that on a price-to-earnings ratio of around 11x, the shares were trading at the low end of their historic range and below lower-margin UK retailers.

"This depressed valuation in our view reflects recent sales declines but ignores our expected return to growth and the improving sales mix," concluded the analysts.