Broker tips: Crest Nicholson, IAG, Wizz Air

Crest Nicholson got a boost on Wednesday as Barclays said the stock was its ‘top pick’, replacing Redrow, following a period of share price underperformance that has left it looking “highly attractive”.

In a note on the UK housebuilding sector, the bank said that aside from a brief spike in cancellations immediately after the Brexit vote – which was largely confined to London and commuter towns – housebuilders continue to trade well.

“The EU referendum vote now joins a list of recent headwinds (a general election; the Scottish independence vote) that have failed to derail the sector. Indeed, as memory of the vote continues to fade, strong fundamentals come more sharply into focus.

“With mortgage rates at record lows, government commitment strong (Help to Buy Equity Loans remain in place until 2021) and an embarrassment of riches on offer in the land buying market, fundamentals remain intact,” it said.

Barclays said trading since the vote to leave the European Union has defied expectations, while wider economic fears have also tempered. As a result, it lifted price targets on a number of stocks across the sector.

As far as overweight-rated Crest Nicholson is concerned, it pointed to a strong top-line growth focus driven by a move to higher price points.

In addition it said the company’s Southern footprint captures attractive end markets. It also argued that the group has “highly-regarded land buying credentials and the fastest sales rate in the listed space”.

International Consolidated Airlines shares rose on Wednesday as Credit Suisse raised its rating on the stock to ‘outperform’ from ‘neutral’ and lifted its target price to 469p from 439p

Credit Suisse said rising premium fares at the company’s British Airways business suggest “top line resilience in the face of elevated demand doubts”.

The bank also expects new British Airways chief executive Alex Cruz will unveil new self-help initiatives focused on achieving the next level of efficiency at the airline. Credit Suisse sees €1bn of additional opportunity beyond current plans, at 39% of 2016 earnings before interest and tax (EBIT).

While rising pension deficits are a concern for the market, it should not de-rail compelling cash distribution prospects for IAG, Credit Suisse added.

The bank has factored in a £6bn deficit and doubled annual top up requirements to £600m but still expects annual free cash flow yields of 12%-18% over fiscal years 2017-2020.

Reflecting the free cash flow yields, which are expected to be distributed to shareholders, Credit Suisse has upgraded its EBIT forecasts by 2-11% to €2.6bn-€3.0bn for 2017-2020.

Wizz Air flew higher as RBC Capital Markets initiated covered of the Eastern European low-cost carrier at ‘outperform’ with a 2,100p price target.

The bank said Wizz offers cash generative growth a non-growth multiple. In addition, it pointed out that it has higher growth markets, with a cost base and scale few competitors match.

RBC said there are few shares offering scope for more than 10% earnings per share compound annual growth rate, free cash flow yield rising to more than 10% and over 30% return on equity in 2017.

The bank pointed out that Wizz routes mostly link Central and Eastern Europe states to each other and Western Europe.

“CEE GDP per head is around 30% lower than in Western Europe, but growing faster. Lower GDP/head translates into a faster rising propensity to fly and market growth at higher GDP multipliers than Western Europe.

“Wizz Air enjoys ex-Fuel cost/available seat kilometres close to Ryanair combined with rising scale of operation and consumer relevance. At this life-stage, we think Wizz is running ahead of a usual low cost carrier profit growth trajectory – with more to come.”

RBC said that many local competitors are still country-focused and often capital-constrained. This sets the scene for further low cost carrier share expansion.

“We do not see just one CEE winner but a likely small set of winners because of the already concentrated markets. We believe Wizz will be one of these.”