Broker tips: Naked Wines, Jet2, Kingfisher, Essensys

Naked Wines is likely to revert to "pedestrian" growth once the pandemic subsides, Liberum said as the broker reduced its rating on the online wine merchant to 'hold'.

In a trading update on Thursday, Naked Wines reported 68% annual sales growth fuelled by drinkers moving online during the crisis. Sales beat the top end of the company's guidance for 55-65% growth.

Liberum said this was a "notable and understandable" slowdown from the 80% increase during the first half. Naked Wines will remain loss-making because of spending to acquire customers and high fixed costs, Liberum said.

The broker cut its rating from 'buy' and increased its price target for Naked Wine shares to 800.0p from 575.0p, stating there was "a very wide range of outcomes" for the group's 2022 performance but highlighted that it predicts seeing a reversion of key performance indicators and pedestrian growth in a post-Covid world.

Barclays initiated coverage on shares of Jet2 on Thursday at 'overweight' with a 1,650.0p price target as it said "opportunities have opened up in a historically competitive market".

Jet2 is a UK leisure travel company that provides holiday products to popular European destinations, with a 15-20% share of the UK packaged holiday market, the bank noted.

"In the short term, Jet2 faces the same challenges as other leisure and aviation names on the timing of the travel recovery, but we believe the company has taken decisive actions to support customers and preserve its balance sheet," it said.

"In the long term, we view Jet2 as a structural beneficiary of the crisis and think opportunities have opened up in a historically competitive market."

Citi upgraded its stance on shares of B&Q owner Kingfisher on Thursday to 'neutral' from 'sell' as it argued that ongoing DIY strength amid extended lockdowns provides good support to current expectations.

The bank said Kingfisher's management team has addressed several shortcomings to support performance in line with the market and the current DIY strength puts it in a sweet spot with limited need for promotional spend and disciplined competition.

Citi said there is limited downside risk to estimates for FY22 and a strong balance sheet more likely supports higher dividends or share buybacks once concerns around Covid restrictions ease. The bank estimates net cash at the end of FY22 at around £1bn pre-IFRS 16 and net debt to EBITDA including IFRS 16 of 1x, "implying good scope for share buybacks and higher dividend payouts".

"Medium-term we believe stiff competitive pressures in France still remain a concern and the headwind of a market normalisation in FY23e is not fully priced in," it added.

The bank has a 350.0p price target on the shares.

Analysts at Berenberg initiated coverage on software and IT services firm Essensys at 'buy' on Thursday, stating the group had plenty of "space to grow".

Berenberg said Essensys was "a market-leading provider of flexible workspace management software" that had "a very significant growth opportunity" immediately ahead of it given "mounting evidence" of a "major structural shift" towards flexible workspaces.

The German bank believes Essensys will be "a major beneficiary" of said shift and stated it already had a leading position in a £4.0bn total addressable market, something it can back up with a number of "highly significant customer relationships", building revenue momentum and longer-term margin upside.

"We believe that the 4x EV/Sales valuation is undemanding, and we initiate coverage of Essensys with a 'buy' recommendation and a 320.0p price target," said the analysts.

Berenberg also said Essensys benefits from strong revenue growth dynamics, with good metrics in terms of software-as-a-service.

"While margins will be determined in the short run by high levels of lower-gross-margin revenue and continued growth in operating costs, we believe its strong economics could result in EBITDA margins of 26% versus 5% today," said Berenberg, which stated this was currently hampered by a higher proportion of lower-margin non-recurring revenue, due to the "significant level" of site openings, but with core annual recurring revenue margins of 70%, it still sees a long-term upside.