Broker tips: GB Group, Dairy Crest, Big Yellow

Although GB Group showed a strong performance "across the board" in its last trading year, analysts at Canaccord Genuity chose to reiterate their 'hold' rating on the software and services company on Tuesday.

With revenues, adjusted EBIT, earnings per share and cash for its 2018 trading year all coming in line with Canaccord's forecasts, which the broker tweaked at the firm's update in April, the analysts also saw fit to repeat on their 500p target price on the group.

"GBG has had an excellent year across the board although this has now created a tough comparative for FY19, for which we leave our forecasts unchanged," Canaccord said.

Canaccord believes that GBG "fully deserves its high rating" based on an unblemished track record and opportunities for further growth given its strong positioning in an attractive market.

"However, a deal may be needed for the shares to make further progress in the short term and therefore we continue to rate the shares a 'hold' and maintain our 500p target price," the broker concluded.

Having picked up 27% since the firm's 18 April update, and although the business appears to be "firing on all cylinders", Canaccord warned that GBG could now face small headwinds in 2019.

Following the publication of Dairy Crest's full-year results and its 10% share placing to allow further investment in the company's cheese capacity, analysts at Credit Suisse saw fit to lower their 2019 earning per share estimates on the Country Life owner by 4%.

Higher capital outlays and the 6% pro-forma EPS dilution resulting from that cash call also resulted in a downwardly revised target price of 550p, versus 600p beforehand.

Reiterating its 'neutral' recommendation on the group's shares, Credit Suisse said that Dairy Crest focus on higher growth format alternatives - such as slices, grating and snacking - in the UK cheese segment should help its Cathedral City brand outperform the market and noted that, in order to support this growth, as well as to target international markets, the company's decision to place shares seemed "sensible against a relatively levered balance sheet".

That was particularly true given rising government bond yields.

Assuming 4% growth at Cathedral City, versus a flat UK cheddar market over the next five years, Credit Suisse said Dairy Crest could up its market share to roughly 24%, from 20% at present, and consume "roughly half of the capacity expansion" with the rest going to international markets.

Nonetheless, even at full capacity, the payback period on the approximately £85m invested would be between four and five years, the broker said.

"We expect a 7% increase in FY19E operating profits to £77m driven by pricing in spreads/butter, whilst cheddar profits will be impacted by higher input costs feeding through. Helped by the share placing, the company should end the year with net debt at 2.1x EBITDA, we estimate," Credit Suisse said.

With Big Yellow continuing to deliver "excellent returns", year after year, analysts at Berenberg saw little reason to doubt the continuation of the firm's success story but, with the company's shares trading at all-time highs, the broker believes that investors should await a "more attractive" entry point before increasing their holdings.

Berenberg downgraded its stance on the Surrey-based self-storage company to 'hold' on Tuesday, even as it upped its target price from 920p to 1,000p in order to account for Big Yellow's updated development pipeline.

Big Yellow has increasingly benefited from its "leading position in a structurally growing segment of the UK real estate market" and has delivered earnings growth of around 13% every year since 2007 at the same time as having increased its total lettable space by 2.1m square feet and its total occupied space by 2m square feet.

At the same time, Big Yellow has enjoyed a "significant operational gearing benefit", expanding its margins from 48% in 2007 to 61% in 2018, the German broker said.

"Looking ahead, we see little reason to doubt the continuation of this success story. However, with the company's shares trading at all-time highs while our earnings forecasts fall to single-digit levels of growth, we believe that investors should await a more attractive entry point," Berenberg added.

Berenberg said the "most significant" revelation in Big Yellow's latest results was its commentary regarding the firm's medium-term growth strategy, announcing that it was aiming to have 100 stores in the UK at scale, versus the 74 presently in operation, meaning that with a current development pipeline of ten new stores, the company would need to acquire 16 further sites over the next five years.