Broker tips: Burberry, Taylor Wimpey, Bovis, Persimmon

Burberry was under the cosh on Wednesday as Goldman Sachs cut its stance on the stock to ‘sell’ from ‘neutral’ and reduced the price target to 1,855p from 2,148p, pointing to a demanding valuation.

GS said it likes the long-term equity story at Burberry but expects that activity to reinvigorate sales momentum will encourage higher incremental investment near term.

The bank cut its 2020/21 earnings per share estimates by 11%/18% and said that with Burberry trading on a CY20E price-to-earnings of 24x and EV/EBIT of 17.2x - versus peers at 22x and 15x - the valuation looks demanding.

Goldman said it continues to forecast an improvement in retail sales growth (FY19 +1%, FY20 +5%), but that peer analysis shows that periods of brand acceleration typically attract higher spend.

"With new product now entering stores, we see this as the time for Burberry to focus on capturing share in a competitive market.

"We now look for 7% growth in operating costs (ex-licensing) in FY20-21 (was +5%), driven by higher discretionary spend (marketing, sales), which we expect to accelerate in 2H20."

Goldman’s adjusted EBIT estimate for 2019 remains broadly unchanged at £435.5m, but it now assumes a modest drop of around 2% in 2020 to £425m, with its assumption of higher investment costs to support improved LFL momentum.

Analysts at Berenberg took a fresh look at the British construction sector on Wednesday, reiterating its positive stance on UK housebuilders after a strong start to the year.

Berenberg said underlying positive trends and strong sales rates have caused consensus estimates to tick up around 3%, while lending trends remained supportive and margins were being largely maintained.

The German bank also stated the sector's cash story continued to "roll on" and said it expects the sector to return 22% of its market capitalisation over the next three years.

In terms of individual companies, Berenberg said it preference list "remains unchanged", even after the strong start to the year.

Berenberg said it continues to prefer exposure to those companies with flexibility around the margin, such as Barratt Developments and Bovis, exemplary track records and compelling valuations, like Bellway, and those like Taylor Wimpey, and MJ Gleeson, which have the ability to materially increase volumes on a multi-year view.

"We would be most wary of exposure to those companies that are overexposed to a secondary market that is structurally challenged (Crest Nicholson, and McCarthy & Stone)," said Berenberg.

Berenberg reiterated its 'buy' rating on Taylor Wimpey and Bovis but dropped its price target on the former to 200p from 210p.

As far as Persimmon was concerned, Berenberg stood by its 'hold' rating but opted to cut its target price to 2,630p from its previous 2,670p standing.