Broker tips: On the Beach, Vistry Group, IAG
House broker Peel Hunt cut the price target on shares of On The Beach on Monday to 400p from 550p following the company’s profit warning at the end of last week.
The broker, which left its ‘buy’ rating unchanged, said that while forecasting is "clearly highly uncertain", it has modelled the impact of a 50% reduction in revenue relative to its prior forecasts for three months and a slow recovery thereafter.
On this basis, it cut its FY20 earnings per share forecast by 43% to 13.4p and its FY21 EPS estimate by 16% to 25.3p.
"The range of possibilities includes an only short-lived dip in bookings and that we restore our forecasts to close to the previous level and a much more severe decline triggered, perhaps, by governmental limits on travel," it said.
"We expect to revisit forecasts in the near term as the situation develops."
The broker said its new target price is based on a price-to-earnings ratio of 30x for the current year FY20, for which it is expecting a deep trough in profits, followed by a rapid recovery, and a PE of 16x for FY21E, which should be a year when the business is "demonstrably well on the way to recovery in a materially less competitive market".
Analysts at Canaccord Genuity slightly lowered their target price on British housebuilder Vistry Group from 1,560.0p to 1,530.0p on Monday but said the firm's recent results were "testament to the good progress" it had made in re-positioning and turning around Bovis Homes over the last few years.
Canaccord said recent trading had been "encouraging" with comments made by the group being consistent with what it had recently heard from peers.
"Clearly the attention now turns to the integration of the recently acquired businesses," said the analysts.
The Canadian bank stated that integration seemed to be "progressing well" but noted that there was more work to be done, particularly in house-building.
"We continue to believe that the acquisition was sensible, and good timing in retrospect given the general election outcome. The medium-term investment case remains a positive one with increased scale and the benefit of the synergies to come through in the housebuilding business and attractive growth prospects in the Vistry Partnerships business."
Over the medium term, Canaccord said Vistry's balance sheet should also be in sound shape, supported by good cash generation of the larger group.
"After the recent share price falls, valuation looks more attractive, assuming macro conditions are not about to be jolted by the coronavirus-related issues. We tweak our price target down to 1530p (from 1560p) and retain our 'buy' rating."
Analysts at Berenberg lowered their target price on shares of British Airways parent company International Consolidated Airlines Group from 700.0p to 620.0p on Monday, citing concerns surrounding the Wuhan coronavirus outbreak.
Berenberg said the coronavirus outbreak again drove its revenue outlook lower in order to reflect European virus contagion.
"Management noted that Asia Pacific demand appears to be slowly stabilising. IAG has redeployed some capacity elsewhere but it is cautious about making deeper cuts," said Berenberg.
"More immediately, near-term Europe bookings have weakened quickly and unevenly. Italy has destabilised as both corporate and leisure customers cancel trips. However, other markets were holding up at the time of Friday’s Q4 release, including Tenerife, the site of a high-profile coronavirus outbreak."
However, Berenberg said the pressure was partially alleviated by IAG's "significant liquidity buffer" and an enterprise value 10% below its invested capital.
The German bank did note that IAG's recent mid-teens return on invested capital might come under pressure for two or more quarters. However, the analysts still expect IAG to generate "sustainable outer-year returns: above its peers' as it benefits from the reconfiguration of its cabins, mergers and acquisitions and an "opportunistic 737 MAX fleet renewal".
"Our weaker revenue estimates lower our 2020E EBIT by 10%, driving our multiple-based price target to GBp620," said Berenberg, which also retained its 'buy' rating