Broker tips: FirstGroup, Tate & Lyle, Indivior

Analysts at Canaccord Genuity upgraded their stance on transport operator FirstGroup from 'hold' to 'buy' on Monday but noted that timing remained uncertain despite the firm's good value.

Canaccord said even though FirstGroup's operations were "significantly impacted" by the Covid-19 pandemic, it was important to remember that the company also provides essential services to the communities it serves.

The Canadian bank said demand was therefore likely to return once the crisis passes, although the analysts highlighted that it may, in fact, take years to fully recover.

Canaccord also pointed out that FirstGroup's North American disposal programme had unfortunately come to a standstill but noted that it expects the efforts to restart when visibility improves.

But despite fears around Covid-19's impacts on the group's prospects, Canaccord chose to upgrade its recommendation to 'buy' following a significant decline in the group's share price in recent months.

However, Canaccord did opt to move its target price on the stock down from 124p to 50p.

Analysts at Berenberg slightly raised their target price on 'hold' rated food ingredients manufacturer Tate & Lyle on Monday, stating the group's first-quarter update was "sweeter than expected".

Berenberg upped their target price on Tate & Lyle's stock from 665p to 695p after having cut its 2021 forecasts for the group by over 20% since March.

Although volumes in T&L's food and beverage solutions unit declined 2%, broadly in line with its forecast for a 1% decline, volumes in the primary products division declined just 12% - much better than its expectations of a 20% drop. Overall, group revenues decreased 5%, helped by positive price/mix.

The German bank said recent results had shown the progress Tate had made in important areas like product mix and productivity

measures but the analysts highlighted that as with peers, where Tate's 2021 full-year earnings ultimately land will depend on the timing of lockdowns and subsequent easing measures.

However, Berenberg noted that Covid-19 had again highlighted several vulnerabilities of Tate's business model - high exposure to out-of-home consumption, high fixed costs and lingering exposure to commodities like ethanol.

But on the more positive side, Berenberg said Tate's liquidity position was "strong" and noted that the group was now trading on 14x calendar 2021 price-to-earnings ratio - a 30% discount to global staples - broadly in line with its 25% average discount for the past five years.

Indivior surged on Monday as Jefferies upgraded its ratings on the stock after the company reached a settlement with US authorities related to its opioid addiction treatment Suboxone.

Indivior announced at the end of last week that it had agreed to pay federal and state authorities $600m over seven years and have its wholly-owned subsidiary, Solutions Inc, plead guilty to a felony charge to resolve allegations that it engaged in an illegal scheme to boost prescriptions of Suboxone.

Jefferies upgraded its stance on Indivior shares to ‘buy’ from ‘hold’ and lifted its price target to 200p from 70p on the news. It said the initial market reaction to the settlement was not "reflective of the removal of this significant overhang".

It said the DoJ investigation and subsequent indictment have been a significant overhang for Indivior since its spin-out from Reckitt Benckiser in 2014.

"In our view, the $600m settlement is significantly better than expectations and covers off the additional related FTC and State subpoenas investigations. Furthermore, we see the payment horizon of seven years as comfortably within Indivior’s means, even in our downside scenario."

Jefferies said it expects the focus to return to fundamentals and sees an attractive risk-reward, driven by long-term potential for Sublocade, which is also used to treat opioid addiction. It added that around $350m of available liquidity will likely put increased focus on capital allocation.