Broker tips: Johnson Matthey, Britvic, Tesco

Analysts at Berenberg upped their target price on diversified chemicals outfit Johnson Matthey on Monday, noting that contrary to what the intraday share price reaction might lead one to believe, the group's 2019 results marked a pleasing continuation of a two-year-long pattern of "trusty delivery".

Berenberg highlighted that in a year in which every other chemicals company exposed heavily to an automotive name issued a profit warning, Johnson Matthey's adjusted EBIT actually rose 8% to £566m - 1% ahead of consensus expectations.

"The good results at Johnson Matthey will last longer than the market scepticism," said Berenberg, which raised its target price on the group from 3,600p to 3,750p.

The German bank, which also reiterated its 'buy' rating on the group, said the key takeaway from Johnson Matthey's results was that the firm was set to grow consistently.

Berenberg also feels cash flow concerns will ease, with the market, in its view, having fallen back into "a depressingly familiar pattern" of fixating on negatives, such as lacklustre cash flow, which was just above breakeven owing to refinery outage and higher palladium prices.

"This is clearly a temporary development. After the construction of new Polish and Chinese facilities, estimated at circa £90m apiece, and a smaller Indian facility (£50m), we expect capex in autocatalysts to normalise at close to a mere 4% of sales from 2022."

The analysts also made minor changes to their estimates in order to reflect a more favourable FX environment in 2020, which they expect to be offset in subsequent years by "modestly higher interest and corporate costs".

Over at Shore Capital Markets, analysts kept their 'hold' rating on Britvic in place following a "solid enough" set of first-half results from the beverage maker.

ShoreCap said it expects to see a similar second-half delivery from Britvic, but with "more (welcome)" volume growth.

Britvic's UK carbonated beverages business was said to be "well placed" for flexibility around price and promotion – potentially helping to negotiate a "tricky consumer and competitor backdrop".

Although ShoreCap acknowledged that Q4 faces "a tough weather-related comparative", its analysts believe this will be offset by the impact of last year’s CO2 shortage throughout Q3.

The British broker said Britvic was showing "encouraging signs" of becoming a "more agile and competitive company" but cautioned that with the stock having gently re-rated since its 2018 full-year results, it has opted to "remain on the sidelines" for now.

ShoreCap said it would look to turn more positive if Britvic's business capability programme could create a "sustainable competitive advantage".

Jefferies reiterated its 'buy' recommendation on shares of Tesco, telling clients that the company's first-quarter sales figures and Capital Markets Day would confirm steady progress in the UK and the increasingly cash generative nature of the business.

The analysts were also hopeful that the coming weeks would help refocus investors' attention on the grocer's fundamentals, following the distraction of the prolonged Brexit process, which had detracted from the positive momentum in the business.

"More recently new gyrations in the Brexit debate detracted from that positive momentum. We are hopeful that the coming weeks should help refocus investors' minds on the stock's bottom-up merits," they said.

Their projections were for the company's free cash flow to rise towards £1.8bn by 20/21, with the rate of growth in earnings per share expected to have moderated to 9% by then, after a "meatier" 14% in 19/20.

For Tesco's first quarter sales, Jefferies was anticipating like-for-like sales growth of 0.6%, which the broker said would put the grocer well ahead of the average for its rivals.

No new target for cost savings was likely to be forthcoming at the Capital Markets Day, Jefferies added, but management was expected to discuss multiple sources of incremental efficiencies in order to grow the customer offering.

Jefferies also stuck to its 275p target price for the shares.