Broker tips: FlyBe, Diageo, GVC

Liberum raised its target price on FlyBe to 43p from 36p and left its recommendation at 'hold', citing the low-cost carrier's continued strong commercial performance after capacity issues had been brought under control.

With 18 months of unit revenue improvements already under the belt, Liberum said improvements were set to continue, driven by mix and supported by further cuts to available seats.

FlyBe saw revenue per seat rise 10.1% in March 2018 as a result of capacity cuts.

However, Liberum noted that a poor unit cost performance had prevented FlyBe's improved revenues from driving better profitability.

"Some cost headwinds will moderate or not recur, but clear evidence of progress on non-fuel unit costs is needed to support the investment case," the broker said in a note.

Back in June, Flybe revealed that profits were expected to nosedive following a series of setbacks from poor weather.

Annual pre-tax losses were projected to widen to £15.7m despite an expected 7% growth in revenue to £755m.

Drinks giant Diageo got a boost on Friday as Goldman Sachs bumped it up to 'buy' from 'neutral' and hiked the price target to 3,160p from 2,667p, citing a likely acceleration in organic sales growth.

The bank reckons organic sales growth will accelerate to 5.6% for FY19-20 from just 1% in FY14-16 and 4.3% in FY17-18, as Casamigos boosts growth in the US, India headwinds abate and emerging markets continue to inflect.

GS said it continues to believe Diageo can over-deliver on margin, and assumes 250 basis points of organic margin expansion over FY17-19, versus guidance of 175 basis points.

It noted the shares are up 2% year-to-date in euros, outperforming European staples by 3 percentage points.

"However, it has underperformed its spirits peers by 61% since 2015, having failed to keep pace with their accelerating sales growth. Trading on 22x CY19E P/E, Diageo is broadly in line with the sector, despite greater organic sales growth (5.6% FY19-20E versus 4.1%) and higher returns (CY18-20E CROCI 13.3% versus 11.2%).

"We expect evidence of accelerating organic sales growth and margin delivery to drive outperformance."

Diageo is due to report its full-year 2018 results on 26 July and GS expects to see 4.1% organic sales growth, 100 basis points of organic margin expansion and earnings per share of 119p.

Broker Canaccord Genuity expects a "positive message" from GVC's year end update on 18 July as England's eventual exit from the World Cup saved the bookmaker from a potential £10m hit.

The Canadian broker said the overall outcome for GVC looks set to be a positive one, despite a likely costly golden boot award for Harry Kane.

"While England were relatively unfancied at the start of the tournament, they will still have been among the best-backed teams for the UK-focused bookies, so they will have generated some solace from the semi-final exit," said Canaccord.

The effects of England's World Cup performance aside, Canaccord sees GVC, which owns the likes of Ladbrokes and btwin, as being "particularly well positioned", despite tightening regulations.

Canaccord expects a first-half EBITDA of £345.9m, up 9% year-on-year, that would drive earnings per share growth 10% to 33p, with the World Cup providing upside risk.

Ahead of GVC's trading update, the broker updated its forecasts, with full-year EBITDA nudged down from £745.3m to £740.0m, with EPS upgraded from 62.7p to 74.0p, primarily on lower interest.

"With strong momentum, upside risk on synergy targets and a strong positioning for the nascent US sports betting market, we see scope for further outperformance," said Canaccord.

Canaccord raised its target price on GVC from 1,170p to 1,250p and reiterated its 'buy' rating on the group.