Broker tips: Tesco, Moonpig, Close Brothers, Netcall

Shore Capital analysts reiterated their 'buy' stance for shares of Tesco, telling clients that the business was performing well as it anticipates ongoing share buybacks or special dividends "reflective of the prevailing share price multiples".

In ShoreCap's judgement, Tesco's equity story had been a "dull" one of late in comparison to the bid-infused atmosphere in its sector and on the wider FTSE 100.

"The business has been between a bit of a rock and a hard place, not seen as likely to be a bid target and not yet in a position, due to the fragility and uncertainty engendered by the pandemic, to set out a clear and convincing narrative for the market to follow," ShoreCap explained.

Nonetheless, the analysts said the group had executed "very well", particularly in both UK retail and wholesale, "which is a strong platform to have greater confidence in the ability of Tesco to be a cash compounder."

The key, ShoreCap said, was for the grocer to improve visibility around its operating cash flows and earnings and while it could not 100% rule out M&A, bolt-on work was a possibility.

ShoreCap also pointed out that the share buyback announced by the company on Wednesday was better than it had expected.

Moonpig was under the cosh on Wednesday as Davy initiated coverage on shares of the online greeting card retailer at 'neutral', with a 345.0p price target.

Davy said the valuation looks full despite the "rather anaemic" equity performance since it went public in February 2021 at 350.0p.

"The longer-term 20/23 view seems unlikely to match either the business performance prior to IPO or the Covid-inspired bump," it said.

Davy said the risk/return profile was not compelling.

RBC Capital Markets downgraded Close Brothers to 'sector perform' from 'outperform' on Wednesday, cutting its price target to 1,700.0p from 1,800.0p as it said the valuation looked relatively full.

The bank said it doesn't see a catalyst for the shares in the near term but noted that banking loan book growth of 11% in FY21 was much stronger than consensus expected going into the year.

It said consensus expectations for 6% growth in FY22 represented an achievable hurdle but management's guidance on the full year results call was cautious, with some debate about whether government loan schemes have brought demand forward.

"We are ahead of consensus modelling 8% growth in FY22, but the delta is a lot lower than last year," it said.

RBC also pointed out that Close Brothers has a small negative gearing to rising rates.

Analysts at Canaccord Genuity raised their target price on software firm Netcall from 100.0p to 110.0p on Wednesday, following the group's full-year earnings.

Canaccord noted that Netcall's full-year sales and adjusted underlying earnings were both in line with its trading statement. However, the analysts also pointed out that adjusted underlying earnings of £3.4m were roughly 5% ahead of its estimates.

Annual contracted value increased 10% year-on-year, an acceleration Canaccord deemed as important as it underpinned its slightly raised forecast for 2022 and new forecast for 10% sales growth in 2023.

"This acceleration of ACV growth de-risks the forward estimates and is a consequence of fast-growing cloud subscription revenues, which increased by 26% in FY21 and now account for 31% of group (PY 26%)," said Canaccord, which also reiterated its 'buy' rating on the stock.

On the back of the results, the Canadian bank upgraded 2022 adjusted EBIT/EPS by 4/3% and highlighted that at current levels, Netcall's enterprise value/sales valuation was a 25% discount to the UK IT sector but did add that growth rate and margins were both in line with sector.