Broker tips: Persimmon, Carnival, Quixant

Persimmon got a boost on Friday after Jefferies upgraded its stance on shares of the housebuilder to 'buy' from 'hold' and said it was now among its preferred picks in the sector.

"Against a sector that is +20% year-to-date, individual stock prices have seen a wide variation in performance largely dominated by investor perception of risk," it noted.

"With sector valuations appearing to reflect a circa 12% decline in house prices, we continue to believe risk from Brexit may be overplayed, offering value opportunities in the sector. However, with a changing focus of company-specific risk, we see now as the time to modify our stock preference."

As far as Persimmon is concerned, it said the strength of the business has long talked for itself, with return on capital employed in excess of 40%, EBIT margin of more than 30% and net cash of £833m.

"Persimmon's dividend yield places it top five in the FTSE 350. While free cash flow dips in 2020E, the strong cash position provides comfort on this yield while still providing scope for 'surplus cash' to supplement in future years.

"With an update on the star rating due at end September, we see the risks from customer service/quality reducing, and believe increasing confidence in the sustainability of sector-leading margins should make this stock too cheap to ignore."

The bank lifted its price target on Persimmon to 2,438p from 2,196p.

Berenberg downgraded its stance on shares of cruise operator Carnival to 'sell' from 'hold' on Friday, pointing to a weakening outlook for 2020 following a profit warning the day before.

On Thursday, Carnival downgraded its adjusted earnings per share guidance for 2019 to between $4.23 and $4.27 from a previous range of $4.25 to $4.35 as it said highlighted the impact of higher fuel prices.

The bank, which cut its price target on the stock to 3,100p from 3,800p, said a combination of the weaker operational outlook and higher fuel costs result in its earnings per share estimate for 2020 coming down to $4, an 11% drop.

"When we downgraded Carnival on 28 June 2019, we saw a fine balance between the macro risks and the company’s optically cheap valuation," Berenberg said.

"The Q319 results have heightened our fears, and with the shares down by just 2% from when we downgraded, we believe the time is right to take the shares to sell."

It added that while a valuation of 9.5x 2020F price-to-earnings multiple is a material discount to the long-run average, its concerns about earnings and the risk from a flagging booking environment justify the downgrade decision.

Analysts at Canaccord Genuity cut their target price on technology firm Quixant from 400p down to 250p on Friday, citing a challenging year in the group's gaming division.

Quixant warned on its second-half outlook following a "significant softening" of demand from major gaming customers, including key account Ainsworth, which accounts for 17% of the group's revenue.

But Canaccord, which stood by its 'buy' rating on the firm, said Quixant remains highly cash generative, has a strong balance sheet, its customer base continues to diversify and highlighted that new business wins were supportive of a return to long-term growth.

While the Canadian broker noted that visibility was a concern, with some customers pulling back on order volumes to take a step back and develop new content, the company has still managed to maintain a 100% retention rate and also continued to grow its client base.

Canaccord said the greater concern was that Quixant did not have enough visibility on orders to see a "healthy" addressable market of 500,000 gaming machines per year coming, but noted that immediate steps were being taken to rectify this.

The analysts expect new business wins to drive a return to growth from 2020 onwards and said they were encouraged by the positive momentum in developing medium-to-long-term fairways of growth, all of which hold significant potential to both diversify revenue concentration and improve quality of earnings.

"In light of the H2 warning, we have lowered our estimates to the bottom end of guidance driving EPS downgrades of 39% 2019E, 26% 2020E and 16% 2021E," said Canaccord.