Broker tips: Ashtead, Tate & Lyle, Mitchells & Butlers, Croda

Ashtead took a hit on Wednesday after a double downgrade by Bank of America Merrill Lynch, which cut the stock to ‘underperform’ from ‘buy’ and slashed its price target to 1,000p from 1,300p, pointing to a “triple whammy” of worrying trends.

“We have become increasingly concerned that the rental rate environment has weakened in recent months and the outlook for further rate growth from the current cyclical peak looks increasing unlikely,” the bank said.

Bank of America said its concern was based on the shake-out from the oil and gas slowdown which is having an impact on second-hand values at auction, weaker commentary from United Rentals, and the fact that elevated levels of new equipment in the supply chain could add pressure to Oil Equipment Manufacturing prices and therefore yields.

Tate & Lyle got a boost after Goldman Sachs upgraded the stock to ‘neutral’ from ‘sell’ and raised its price target to 470p from 460p following its recent underperformance.

It noted that since being added to the 'sell' list on 1 December 2014, the stock is down 16% versus the FTSE World Europe up 2.5%.

“We continue to believe that Tate’s poor cash conversion is structural rather than cyclical, and that its older asset base, pension deficit, and rising working capital will limit its ability to improve cash conversion going forward,” Goldman said.

Mitchells & Butlers rallied 5% after Numis raised its stance on the stock to ‘add’ from ‘hold’ following an 18% decline in the share price.

“Following around 13% downgrades to our 2017E pre-tax profit forecasts to reflect the National Living Wage, there should be limited downside to forecasts, but medium-term upside if the company’s operational efforts gain traction,” the brokerage said.

Exane BNP Paribas upgraded Croda International to ‘neutral’ from ‘underperform’ and raised its price target to 2,950p from 2,620p, noting the shares are close to fair value and pointing to potential catalysts such as M&A or a special dividend in the second half.

Exane said the company’s second-quarter results surprised with accelerating growth, driven by Personal Care and Performance Technologies. It said first-half margins remained solid thanks to Life Sciences and strong growth in NPP products, which now account for a record 26% of sales, versus 23% last year.

In addition, the bank said cash flow remained solid despite higher capex and a pension cash-out in the first quarter of around £20m.