Broker tips: Majestic Wine, IQE, Domino's

RBC Capital Markets initiated coverage of Majestic Wine at ‘outperform’ with a 550p price target on target on Thursday, saying its analysis has shown that Naked Wines is deeply undervalued.

The bank said Majestic Wine's unique customer-funded online business, Naked Wines, is positioned in the two fastest-growing channels in the wine market and should drive a re-rating of the group's shares.

"Our proprietary US survey highlights Naked Wines as the number one website for selling wine among its target consumers, reflecting its overall superior proposition compared to peers as our research also reveals," it said.

RBC's analysis suggests Naked Wines is valued by the market at a 55% discount to internet peers on EV/EBITDA and a 50% discount on a growth-adjusted basis. The valuation discount is even greater on EV/sales at 70%, which RBC said is excessive.

"Naked Wines' larger scale and direct-to-consumer model provide it with a competitive advantage through better prices/quality which should continue to widen against peers as the business grows."

With all three of Apple's latest iPhones ditching the fingerprint sensor for facial recognition security measures, analysts at N+1Singer noted this would mean IQE's Vertical Cavity Surface Emitting Lasers (VCSELs) are in all iPhones now, having been just in the top-of-the-range X model previously.

However, Singer noted that this was expected and makes up the basis for the much talked about ramp up in second-half volumes for IQE.

Analysts at Canaccord maintained their forecast that the iPhone contract implies IQE can do twice the revenues it did in the second half of last year with its largest VCSEL customer.

Canaccord's Paul Morland pointed out that IQE's share price has for some time now been almost exclusively focused on Apple and its supply chain, and the shares have fallen despite "perfectly respectable" interim results.

"We believe this ignores the fact that today, in VCSELs at least, IQE has no peers. This will of course change, but our view is that it won't be this year and it may not be next year," Morland wrote.

"I believe the market's obsession with the Apple supply chain is misplaced as far as IQE is concerned and at some point, the stock's compelling fundamentals will re-assert themselves," the analyst said.

With IQE having only addressed Apple, which has around 15% of the global smartphone market, next year the AIM-listed company "can start to address the other 85%".

With IQE shares now on a P/E for 2019 below 20x, he reiterated his 'buy' recommendation and 190p target price.

Analysts at Berenberg lowered their target price on Domino's Pizza on Thursday, saying that several issues that had plagued the group during the first half of last year had returned to the fore.

Berenberg, which maintained its 'hold' rating on Domino's, said the group's UK like-for-like sales growth of 5.9% had been relatively subdued in the second quarter and noted that the company's relationship with its franchisees appeared to have "become challenging again" and "unlikely to improve in the near term", slowing the rate of store openings "for some time" unless the firm was capable of absorbing more costs for franchisees.

However, Berenberg noted that England's recent performance in the FIFA World Cup and, more recently, the end of the heatwave seen across much of the UK "should support Q3 performance".

In addition, the broker stated that Domino's overseas division, which made an unexpected loss, had also turned in a "disappointing" first half, bringing up memories of its previous struggles at generating profit in Germany.

"As such, we think the outlook for Domino's is increasingly uncertain," said Berenberg.

"However, given the shares have fallen substantially in recent weeks and are now trading close to their lowest multiple for several years, we maintain our 'hold' rating."