Broker tips: Asos, Rightmove, Wetherspoons

JPMorgan Cazenove upgraded its stance on shares of online fashion retailer Asos to ‘overweight’ from ‘neutral’ on Wednesday, arguing that "a stronger operational grip has now been consistently demonstrated" after a turbulent 18 months.

The bank pointed out that even before the Covid-19 crisis but as recently as nine months ago, fast-paced expansion and a lack of management bandwidth combined to cause "creative missteps", warehouse issues and slowing demand and lower profitability.

"However, roll-forward and the group has significantly strengthened the board, addressed mistakes with tangible changes resulting in re-engagement of demand, but also overall better operational grip than we have ever seen at the company - as highlighted by improved results and KPIs over a now six- month period," it said.

It also said that the recent capital raise provides sufficient funds for Asos to manage through the virus outbreak and could well leave the balance sheet in a more robust position even as we exit the crisis period.

"In summary, we believe navigating through recent challenges has created a stronger Asos, and we upgrade to ‘overweight’," JPM said.

It cut its price target on the stock to 3,500p from 3,800p.

RBC Capital Markets downgraded Rightmove to ‘underperform’ from ‘sector perform’ on Wednesday, slashing the price target to 440p from 550p as it said the shares are not appropriately discounting the risk of prolonged pressure on the property market and in turn on Rightmove's customers.

RBC said the company’s defensive business model and attractive cash flow characteristics have warranted a historical 60% price-to-earnings premium to the market.

However, the likelihood of the immediate, sharp impact on the property market from Covid-19 extending into a drawn-out period of weakness has increased, and as a result, RBC expects an acceleration in estate agent closures and greater pressure on Rightmove's average revenue per agent in the near term.

RBC said the lockdown could have longer-lasting effects on the economy, adding pressure on agents.

"The inevitable rise in UK unemployment and weakened consumer confidence are likely to dampen property demand beyond the lockdown. GfK's consumer confidence index in March plummeted to its lowest level since the financial crisis.

"Sentiment across the housing market has also deteriorated sharply in March, as highlighted by the latest RICS UK Residential Survey results, with the majority of respondents expecting sales to be down over the year ahead. Rightmove's pricing power may be undermined by a downturn."

Pub chain Wetherspoons may need to raise up to £250m to survive the liquidity crisis, Canaccord Genuity said on Wednesday.

"Wetherspoons’ long-standing, capable management team and outstanding 'value-for-money' proposition should stand it in good stead when the country starts to reopen for business," it said. "In the meantime, it has withdrawn guidance, but our scenario analysis suggests that it may need to raise up to £250m to survive the liquidity crisis - not only to cope with closure but also potentially a sustained period of weak demand which does not suit its high-volume, high-cost, low-margin business model."

Canaccord said it expects the company is talking to the government’s Covid-19 Corporate Financing Facility and its bankers, and that investors should not fully discount an equity fundraise.

Its central case is for Wetherspoons to be closed for three months, reopening in July. This reduces Canaccord's sales forecast by £460m to £1.35bn for FY20 and by £470m to £1.42bn for FY21. "We admit there could be a wide variation to this scenario but the direction feels right," it said.

Canaccord- which pointed out that a fundraising would likely not be the preferred route for chairman Tim Martin - maintained its ‘hold’ rating on the shares but slashed the price target to 900p from 1,500p.