Broker tips: Fevertree, GVC Holdings

JPMorgan Cazenove downgraded its rating on shares of posh tonics maker Fevertree to ‘underweight’ from ‘neutral’ on Thursday following "significant" outperformance year to date.

JPM noted the shares have risen 13% YTD and are up more than 150% from mid-March lows, versus the sector down 17% YTD. It said the stock is now back at 18-month valuation highs despite lingering Covid-19 pressures to the top-line and margins.

"With little incremental from the H1 2020 pre-close trading update (reaction), risks still look prevalent to more profitable on-trade demand from Covid-19 (circa 45% of sales), including re-closures in parts of the US," it said.

JPM said the current valuation skews the risk/reward to the downside as it appears to price in a seamless recovery in FY21, including continued share/distribution gains in the US and Europe over the midterm, despite existing signs of UK share losses.

The bank lifted its price target on the stock to 1,900p from 1,260p, reflecting a 70% 2021 price-to-earnings premium to the sector.

Analysts at Berenberg raised their target price on bookmaker GVC Holdings from 900.0p to 1,100.0p on Thursday, stating the group had delivered an "exceptional" second quarter despite Covid-19 related headwinds.

Berenberg said GVC had delivered an "exceptional" trading update that reinforced its view that it was "the name to own" in the space.

Despite obvious headwinds from Covid-19, the German bank highlighted that GVC had managed to operate during the disruption at cash flow neutral, commit to a second round of investment in Roar Digital and report online net gaming revenue growth for the half of 21%, demonstrating "the strength and diversification" of its business model.

Furthermore, Berenberg, which reiterated its 'buy' rating on the company, noted that GVC had indicated that first-half underlying earnings were expected to be in the range of £340m-350m - ahead of expectations.

"Despite a good run in the shares over the past month, the stock remains on undemanding multiples, trading at 10x P/E on 2021 estimates," said the analysts.