Broker tips: Dunelm, Ninety One, IG Group
RBC Capital Markets downgraded its rating on homeware retailer Dunelm to ’sector perform’ from ‘outperform’ on Monday following the recent rally in the shares.
The bank said Dunelm remains a well-managed, cash-generative business with a strong digital offer and range advantage.
"However, post a recent rally in the shares, we see less valuation upside now, particularly given likely pressure on the UK housing market and extended social distancing requirements."
RBC said that once stores re-open - by the start of June it reckons - they are likely to be quieter for up to a year as a result of social distancing requirements.
"We think it will be harder for stores to achieve operating leverage due to likely lower sales densities. This may pressure group margins in the near term," it said.
It added that softer GBP/USD rate presents a gross margin headwind in H2 FY21 and into FY22.
The bank upped its price target on Dunelm to 950p from 900p.
Analysts at JP Morgan kicked off coverage of South Africa-based asset manager Ninety One with a 'neutral' recommendation and 170.0p December 2020 target price.
Short-term headwinds offset the long-term growth potential, they said in a research note sent to clients. However, a shift in South Africa towards trusts and strong offshore offerings would support growth, JPM argued.
On the back of recent "market events and ongoing uncertainty", JP Morgan was anticipating "broadly stable" adjusted profits for the 2020 financial year ending on 31 March and a 12% decline in FY 2021.
It also forecast a 50% payout ratio for FY 2020, followed by 70% in the subsequent two years, while highlighting its bias towards emerging markets, what with 57% of assets under management directed towards the space via its investment strategy.
The investment bank also highlighted the flexibility that the company had in terms of its balance sheet and the optionality that it offered.
In terms of valuation, the shares, which listed in mid-March, were trading on a price-to-earnings multiple of about 12.0 for FY 2020, versus its European asset management peers which were on a P/E multiple of 13 and sported an estimated 5% 2021 dividend yield.
Analysts at Liberum raised their target price on financial derivatives trader IG Group from 725p to 740p on Monday, stating the group was likely to continue benefiting from the recent heightened volatility seen across markets.
Liberum updated its "already top-end of consensus" forecasts for earnings per share by 14% after sustained market volatility resulted in IG Group releasing a surprise update, just three weeks since its third-quarter trading statement.
However, given the uncertainties around how long the current trading conditions would prevail, as well as how clients will react to potential losses, the analysts said they only expected IG to see a "limited medium-term benefit" at this stage.
As a result, the upgrades to its 2021 estimates were only moderate, acknowledging the likely benefit of the increased client base on the group's long-term earnings potential.
"Despite this, we do not see the shares as offering material upside, a view which is supported by the fact the shares trade at twice their long-term premium to the FTSE All-Share," said Liberum, which also reiterated its 'hold' rating on IG.
Barclays also reinstated its coverage of IG Group with an ‘overweight’ recommendation, after the online trading platform reported bumper trading.
The bank, which has a price target of 860p on the FTSE 250 stock, pointed to a spike in revenues in the fourth quarter, after widespread market volatility following the coronavirus outbreak boosted trading volumes.