Broker tips: Yellow Cake, Marks & Spencer, Thomas Cook, Vodafone

Analysts at Berenberg upped its target price on uranium specialist Yellow Cake on Wednesday, pointing to a "resuscitated spot market" and rapidly rising uranium prices.

Berenberg, which reiterated its 'buy' rating and upped its target price on the firm from 254p to 273p, felt that its forecasts were set at a level that was "realistic rather than being a stretch target".

"It is positive to see greater momentum in the uranium price, debunking the view that this may be a false dawn for the spot price," analysts wrote. "With our 2018 year-end commodity price forecast now lagging the spot price, we update our uranium price deck, which in turn increases our short-term price target."

Analysts noted that their long-term target price of 362p for 2022 remained unchanged as, while the resuscitation of the spot market was "clear to see", pricing remained "far from a sustainable level".

Berenberg feels that, as uranium mines come to the end of their record-high long-term fixed-price contracts over the next two-to-three years, they will start to receive spot pricing that, at current levels, will result in mine closure and a tightening of supply.

"The tighter supply will result in an increase in the spot price, and one would expect a rational market to show rising pricing ahead of potential mine closures to ensure sustained supply."

All in all, Berenberg said Yellow Cake's shares "continue to trade at a discount to the next asset value", leading it to believe the group's current share price offered a "compelling entry point into the rising uranium price".

RBC Capital Markets thinks Marks & Spencer will take time to turn around its food business and so has downgraded its rating on the retailer.

RBC said M&S should continue to generate enough cash in coming years to keep up its dividend payments, though so the rating was just cut to 'sector perform' from 'outperform' as the target price was trimmed to 320p from 330p.

Having completed around a third of its food range reviews, the rest is expected to be completed by April and then it will "take time for customers to notice its new lower prices" and RBC analysts don't expect sales to regain momentum until "well into next year". Group forecasts have been nudged down 1-2% as a result.

Longer-term growth prospects "may be constrained by its already high market share in the premium segment, and its low basket size online which makes the economics of home delivery unattractive".

Looking to the Clothing & Home segment, there are further opportunities to improve margin, while the analysts expect like-for-like sales to perform broadly in line with the sector, while behind the scenes improvements are made to buying and inventory control.

With over 90% of sales from the UK, the company is a domestic consumer proxy and so is reliant on the Brexit outcome, but there is a "substantial" cost reduction opportunity.

A day after Thomas Cook unveiled its third profit warning this year, analysts in the City seemed not quite sure what to make of the travel operator.

The FTSE 250 group said that full-year earnings before interest and tax were now expected to come in around £30m lower than previously guided, suspended its dividend and revealed net debt that was around £100m higher than forecast at £389m. Winter bookings were down 3% and Summer 2019 had seen a "mixed start".

Morgan Stanley downgraded to 'equal weight' from 'overweight' and pulled its price target as it saw a very wide risk-reward price spread of 20p all the way up to 130p.

On the one side, current trading looks weak for Winter 18/19 and the company noted a mixed start to Summer 2019. With just £20 of EBIT per holiday for all major tour operators, "a 5% shift in booking patterns can lead to a 20% profit headwind".

Analyst Jamie Rollo feels 2019 could be another late booking year, "with Brexit causing not only consumer uncertainty but also possibly 'scare stories' in the media about travel delays, visa issues, and increasing travel expenses".

He said the suspension of the dividend was "a surprise" as it only saves £9m of cash, so "could conceivably be seen as a sign of tightening liquidity", though he accepts that the company assured it has plenty of headroom, has received support from its lenders and has no debt maturities before 2022.

"With more upside to our bull case than our bear case, the shares already seem to be pricing in a lot of risk and appear attractive. But we have little confidence in our forecasts, and less so in our FCF forecasts," the Morgan Stanley man concluded.

Confirmation by European Commission antitrust authorities of the merger between the third and fourth biggest Dutch telecoms players "is the best piece of news that this unloved sector has had in at least the last two years", said Berenberg on Wednesday.

But Vodafone is only Berenberg's speculative "hope trade" on the news, analysts stressed.

The EC approved the deal between T-Mobile and Tele2 without any remedies, which was the first time such a decision was made since 2007.

"This latest development could spark (or at least create speculation around) M&A," Berenberg's Usman Ghazi wrote.

"Our interactions with investors over the last 24 hours suggest that renewed hope for remedy-light consolidation (of overcrowded four-player European mobile markets) could support inflows into an underweight European telecoms sector in the coming weeks and months."

Investors looking from the Vodafone "hope trade" should note that the read-across from the latest Dutch deal to the FTSE 100 group's major markets such as the UK, Italy and Spain "is tenuous for now", Ghazi said, because the Dutch approval is fairly specific to that market, especially with the competitive foreclosure risk that was facing Tele2 as a result of its small market share of just 5%.

Berenberg has a 'buy' rating and a price target of 243p on Vodafone.