Broker tips: City Pub Group, Ferguson, Vodafone
Analysts at Berenberg slashed their target price on City Pub Group from 220p to 95p on Friday but said the group's recent fundraiser had left the company with a substantial level of liquidity and a best-in-class balance sheet.
While Berenberg noted the £22m placing was "significantly dilutive", the analysts said that had been captured in the share price already and now thinks the company's roughly £25m of headroom left it in a good place with a cash burn during full closure of just £350,000 per month.
"The raise has left the company with a substantial level of liquidity and a best-in-class balance sheet, which it could deploy on cut-price acquisitions over the medium-term," said Berenberg.
The German bank said City Pub was in "a strong position" to take advantage of the inevitable market turmoil over the next 12-24 months and beyond – although it expects management will deploy any capital with "particular care" and does not expect any acquisitions to take place in the next six months at least.
As a result, Berenberg retained its 'buy' rating on City Pub, despite the significantly lower price target and expectations of cancelled dividends in 2020.
Credit Suisse upgraded its recommendation for shares of Ferguson and hiked its target price, arguing that even under its 'grey sky' scenario, the plumbing and heating products distributor's earnings were set to be more stable than in 2008-09.
"We view Ferguson as a high-quality, growth stock in the long term, with scope for a re-rating relative to its US peers," analyst Emily Biddulph said in a research note in which she assumed coverage of the shares.
CS said current circumstances somewhat worked in Ferguson's favour as the company supplied "essential" products, meaning its exposure to new build was less than during the Great Financial Crisis - putting it in a position to finance taking market share, instead of losing it.
The analysts also saw "scope for a quick return to dividend payments", labelling the decision to axe the interim payout "very conservative".
For 2020, CS pencilled in a final dividend of $1.18, with net debt at the end of the year pegged at $1.5bn or just 0.9 times earnings before interest, taxes, depreciation and amortisation versus total facilities of roughly $4.0bn.
CS upgraded the stock from 'underperform' to 'neutral' and marked up its target price from 4,740p to 6,181p.
Analysts at Deutsche Bank kept their recommendation for shares of Vodafone at 'buy', despite their underperformance versus the sector and the wider market year-to-date.
Deutsche Bank noted that Vodafone's 26% year-to-date share price drop was "not great for a supposedly defensive stock", but attributed the decline to liquidity issues during the stock market sell-off, local indices, emerging market exposure and the company's leverage.
The German bank trimmed its target price from 233p to 220p despite remaining at 'buy'.