Broker tips: Dunelm, Serco, G4S, Provident Financial

Analysts at HSBC stuck by their 'hold' recommendation on shares of Dunelm Group despite the unforeseen and hasty departure of its chief executive, John Browett, the day before.

Their expectation was for no immediate changes to the company's strategy; indeed, although Browett's focus on digital, modernising core infrastructure and the Worldstores acquisition had come at a cost, those changes were needed, the broker argued

Furthermore, HSBC put disappointing growth and margins during Browett's reign down to adverse seasonality - which it believed was now reversing.

In any case, with consumer fundamentals worsening it was now all the more necessary for the Board to reassure investors when the retailer next published its full-year numbers, on 13 September.

Linked to the above, HSBC also pointed out how Dunelm's core categories were ultimately cyclical.

HSBC kept its target price for the shares at 600p.

Serco surged on Thursday after UBS upgraded its stance on the stock as it said it was turning positive on the UK outsourcing sector following a 50% underperformance since 2013.

UBS said 2018 is likely to be "a major inflection point", with growing earnings momentum expected to drive a recovery.

"After companies spent five years on cultural transformation, 2018 could see the start of a multi-year structural, but disciplined, expansion in outsourcing. This recovery story is priced in to differing degrees and so we are selective: we upgrade Serco to buy as our key way to play this theme," it said.

Serco was bumped up from 'neutral', with the price target lifted to 145p from 125p, as UBS downgraded G4S to 'neutral' from 'buy', cutting the price target to 300p from 355p.

The bank said it sees an attractive risk/reward in Serco, with a strong sales pipeline and margin recovery secure. "Execution on turnarounds can drive a sustainable profit recovery that is not priced in at current valuations," it said.

Jefferies downgraded Provident Financial to 'hold' from 'buy' and slashed the price target to 940p from 3,478p following the subprime lender's profit warning last week.

Provident issued its second profit warning in two months last week, withdrew its dividend, announced the departure of its CEO and revealed an FCA investigation into Vanquis Bank, as it transitioned to a fully-employed agent model.

Jefferies said in a note that its and management's confidence that the home credit operation could achieve medium-term pre-tax profit of £150m+ post the change to its operational model "proved to be woefully optimistic".

The bank cut its consumer credit division pre-tax profit estimate from £60.5m to a loss of £110.2m, against a guided range of an £80m to £120m loss. It downgraded its pre-tax profit estimates for the group by 59% for 2017 and by 50% for 2018, saying that the company's woes have been exacerbated by the announced FCA investigation overhang at Vanquis Bank.