Broker tips: On the Beach, St James's Place

Analysts at Berenberg upped their target price on UK-based travel retailer On the Beach from 480p to 540p on Monday, stating the shuttering of Thomas Cook last September had presented the group with "a significant opportunity" to achieve a step-change in market share.

Berenberg said the precise shape of OTB's upward trajectory remained "unclear" while prices for flights to many beach destinations remained high.

OTB management made the decision to increase marketing spend following the failure of Thomas Cook and while it suggested in December that traffic to the site had increased, conversions had fallen.

The German bank thinks that increasing marketing spend was the right approach, as flight prices should eventually normalise, and OTB should be left front-of-mind for consumers making bookings but warned that this could well leave earnings with "a peculiar shape" in 2020.

However, despite the potential for short-term volatility, Berenberg still thinks OTB "looks attractive" and raised its outer-year earnings estimates as it rolled forward its valuation on the group.

"In our view, management has a solid track record of scaling the business (both organically and via M&A), managing risk factors and innovating to create new areas of growth," said Berenberg.

"EBITDA has already doubled since the IPO in 2015, and with a significant market opportunity ahead, combined with a sizeable net cash position, we back management to achieve much more in the coming years."

Deutsche Bank downgraded its stance on shares of St James’s Place to ‘hold’ from ‘buy’ on Monday as it argued that the risk/reward was now more balanced.

DB said the company faces two key questions: first, on its charging structure and whether any changes to this might lead to lower group margins; and second, on whether it can continue to grow at its targeted rate (circa 15% per annum), while also maintaining its 80% payout ratio.

"When we upgraded the shares in October, we felt these issues were more than reflected in the share price; at current levels, however, we see more balanced risk-reward and thus downgrade to hold," it said.

Nevertheless, the bank said it continues to believe in SJP’s long-term positioning as arguably the leading company in a growth industry.

"Over the next five years we believe SJP can deliver circa twice the market growth rate, thanks to strong adviser growth and controlled outflows," it said. "As last year’s uncertainty starts to ease and in the expectation of a near-term ‘Brexit bounce’, we forecast growth in gross flows recovering from -4%e in 2019 to +17% in 2020."

Deutsche lifted its price target on the shares to 1,220p from 1,190p.