Broker tips: Persimmon, Taylor Wimpey, Pendragon, Flutter Entertainment

Liberum has named Persimmon and Taylor Wimpey as two of its top picks, after a recent sell-off created an "attractive" buying opportunity among housebuilders.

In a note published on Monday, the broker said it saw "material upside in Persimmon and Taylor Wimpey", both of which have 'buy' ratings and price targets of 3,400.0p and 195.0p respectively.

It continued: "The recent sell-off offers an attractive buying opportunity. We expect a further round of upgrades in the next month to be a catalyst for the sector. Positive updates from the six housebuilders scheduled to report in the next month should reassure investors that trading remains strong, and the Stamp Duty holiday has not been the main driver of demand.

"We continue to find good value in the sector, as it now trades 1.7x 12-month forward price to net asset value compared to 2.1x before the pandemic. We favour Persimmon and Taylor Wimpey among the large caps, but find value more widely in the smaller householders.

Liberum also forecast earnings to increase by 6% per annum in 2021-24, with a dividend yield of 6% in December 2022.

Analysts at Berenberg nudged up their target price on automotive retailer Pendragon from 25.0p to 26.0p on Monday, stating "the dragon firing on all cylinders".

Berenberg made the modest move on its price target for the stock after Pendragon announced that it now expects to report an underlying pre-tax profit of roughly £30.0m for the first half - its strongest first-half outturn in several years despite significant Covid-19 disruptions.

The German bank also pointed out that Pendragon had reinstated full-year guidance and now expects underlying pre-tax profits of £45.0m-50.0m, leading to "significant upgrades" from previous estimates.

"While we make relatively modest changes to our outer-year forecasts, we think the strong H1 is a promising step in the direction of the group's 2025 target of £85m-90m PBT," said Berenberg, which also reiterated its 'buy' rating on the stock.

"We are increasingly confident about the achievability of such targets, which would leave Pendragon's current market cap of circa £260.0m far too low."

Deutsche Bank upgraded Flutter Entertainment to 'buy' from 'hold' on Monday as it argued the shares look cheap following a period of "material" underperformance.

The bank noted that Flutter shares are down 11% year-to-date against a sector that is up 33%.

"We see a solid H1 performance, with sports showing a strong recovery, and continued momentum in the US and Australia, but a marked decline in iGaming (driven by Poker, which had a significant spike up in Q2 FY20) reflecting particularly tough comps," it said.

DB said Flutter has been hit by a number of factors this year. "There was the surprise departure of FanDuel's CEO. This followed shortly after the announcement that Fox had filed an arbitration claim against Flutter over the price at which it can exercise options to acquire 18.6% of FanDuel. And then there was the appeal court in Kentucky, which decided that Flutter owes $870.0m plus accrued interest (potentially $1.2bn).

"The big hit, though, was from Fox, which argues that it should pay the price which Flutter paid Fastball for its 37% stake in FanDuel last December."

The bank cuts its price target on the stock 16,257.0p from 16,285.0p, to reflect risks regarding Fox's FanDuel option and the Kentucky fine.