Broker tips: Burford Capital, B&M, Convatec

Jefferies hiked its price target on Burford Capital on Thursday to 1,820p from 1,370p as it said the portfolio was "entering harvest season".

The bank said 2023 could be the year that Burford’s large portfolio of litigation assets "starts to mature in earnest".

It noted that Burford has identified 61 material legal milestones affecting its assets, of which 30 are final hearings of one kind or another and could therefore lead to near-term cash recoveries.

"2H22 appears to have shown a material acceleration in case conclusions, and this is likely to continue," it said, adding that progress in the YPF legal case is a bonus.

Jefferies, which rates the shares at ‘buy’, said YPF could provide a kicker this year and in future.

"Recent success in court against Argentina in the YPF case has led to a significant unrealised gain in that asset which will be reflected in the 1Q23 results due in the first half of June ($285m, of which $185m to Burford itself)," it said.

"We expect further developments this year, including a damages hearing."

Elsewhere, Deutsche Bank lifted its price target on B&M European Value Retail after the retailer’s results a day earlier.

The bank, which rates B&M at ‘buy’, bumped up the price target to 600p from 580p.

It noted that there have been a number of questions around whether the company was still seeing the benefit from trading down but said the LFL in the last nine weeks "has put some of these concerns to bed".

"Combined with this, management expects to see a degree of gross margin recovery from lower inventory clearance year-over-year, lower freight rates and better factory gate pricing," DB said.

"This combination gives more confidence in an increase in UK adjusted EBITDA margin by 10 basis points to 12.4% and investor belief in the ‘new normal’ 12-13% margin range."

Deutsche Bank said there has been significant sales volatility in the last few years but overall, it thinks B&M has managed to capitalise on this and accordingly has a higher sales density and new profit base.

The bank lifted its FY24 estimate for adjusted EBITDA by 5% to £621m and for earnings per share by 4% to 36.9p.

"With the LFL sales pattern and new space contribution back to historic levels, we expect the PE to revert to its pre-Covid average of circa 14-16x; this derives our 600p price target (from 580p) and our buy recommendation."

Finally, Morgan Stanley lifted its stance on Convatec as it switched its preference over from Coloplast.

MS upgraded Convatec to ‘overweight’ from ‘equalweight’ and upped the price target to 250p from 235p.

"We take a fresh look at the Medtech risk reward profile, post first-quarter results," the bank said.

"Chronic Care remains a preferred end market exposure for us, and risk reward skew now supports switching preference from Coloplast to Convatec after: (i) Coloplast's circa 20% year-to-date price outperformance and (ii) relative valuation."

Denmark’s Coloplast was downgraded to ‘equalweight’ from ‘overweight’ and the price target cut to DKR 950 from DKR 970.

"We note (i) Convatec is approaching the bottom of its historical range, (ii) Coloplast is approaching the top of the range, (iii) the Convatec versus Coloplast valuation spread is also near the bottom of the range," MS said.

"From a valuation perspective we now see a better setup for Convatec."