Broker tips: B&M European Value Retail, Wizz Air, Cranswick, Rolls-Royce

Barclays upgraded its stance on shares of B&M European Value Retail on Wednesday to 'overweight' from 'equalweight' as it pointed to an "attractive" valuation even if zero pandemic benefit is retained.

The bank noted that B&M shares have fallen by more than 40% since the start of March, hurt by concerns on CEO change, retention of pandemic gains, and potential headwinds from lower UK consumer spending.

"We think concerns are fully discounted at this share price and we expect better sales trends to be evidenced in the 1Q trading statement (29 June)," it said.

Barclays cut its price target on the stock to 475.0p from 600.0p.

Citi upgraded its recommendation on shares of budget airline Wizz Air to 'neutral' from 'sell' on Wednesday, keeping the price target at 2,300.0p.

The bank said that while Wizz will be burdened by higher costs in FY23, the company should exceed pre-pandemic levels of profitability in FY24, driven by the easing of unit cost ex-fuel and a better pricing environment.

"Meanwhile, the structural backdrop for Wizz remains supportive in the medium to long-term," Citi said.

Jefferies upgraded food producer Cranswick on Wednesday to 'buy' from 'hold' as it said the pullback below 3,000.0p offers a compelling entry point.

The bank said a fresh approach to forecasting, one based on return on new invested capital, suggests that Cranswick is capable of compounding profits by 6% per annum over the next five years, 150 basis points ahead of consensus, with an upside case of double-digit growth, in line with what has been delivered in the most recent five years.

"With the shares down 25% on the 12-month higher and the EV:EBITDA multiple having close to halved, we upgrade," it said.

Jefferies, which cut its price target on the shares to 3,650.0p from 3,810.0p, said its main concern when it initiated coverage on the stock two years ago was that the maturity of Cranswick's core market of UK retail pork limited future growth opportunity.

"But that would be to ignore Cranswick ability to grow inorganically by deploying new capital successfully in the direction continuous yield improvement in core categories (e.g., Deboflex), capacity expansion and de-bottlenecking in the same (e.g., Ballymena acquisition) and 'greenfield' category entry (e.g., Eye)," it said.

"We accordingly shift our forecasting approach away from one based on sales & margin momentum to one based marginal return on new capital, reflecting on our analysis CWK's impressive (and undimmed) track record of generating mid-teens pre-tax returns on the above."

Analysts at Berenberg downgraded aerospace and defence giant Rolls-Royce from 'buy' to 'hold' on Wednesday, citing "relative uncertainty".

Berenberg said it continues to view Rolls-Royce as "well positioned" to benefit from the eventual recovery in international air traffic, with growth in profits and cash over the medium-term supported by a right-sized cost base and ongoing efficiency initiatives.

However, Berenberg believes the visibility and cadence of the recovery remain less certain relative to more narrowbody-focussed stocks within its coverage.

The German bank also thinks near-term management transition risks exist, with a successor to outgoing chief executive Warren East yet to be confirmed.

"We cut our earnings estimates by 55-95% and our FCF estimates by 20-60% over the next three years. This reflects a large element of catch-up, primarily driven by lower revenue and margin assumptions in civil aerospace, as well as higher interest payments," said the analysts, who also slashed their target price on the stock from 160.0p to 100.0p.

"The shares are down by 30% YTD, underperforming the pan-European civil aerospace sector average, which is down by 20%. The shares trade on a 2024 P/E of 14x, a modest premium to the sector. They look more attractive on a FCF basis, yielding 11% in 2024 versus the sector on 7%."