Broker tips: InterContinental Hotels, Admiral Group, Beazley, Redcentric
Deutsche Bank upgraded its recommendation on InterContinental Hotels on Thursday to 'buy' from 'hold' and hiked the price target to 5,600.0p from 5,175.0p as it said the stock was "a relative safe haven" in the sector.
The bank downgraded IHG to 'hold' last February due to a high valuation and a lack of catalysts. It noted that since then, the shares have fallen 11% versus the Stoxx Euro 600 up 12%.
Explaining the upgrade, DB said IHG is benefiting from a solid operating recovery and is back at more attractive levels of valuation "with exciting growth perspectives".
"Thanks to its impressive cash-generative business model, its geographical exposure to the fastest-recovering economies (70% of the group results come from the US and 8% from China) and a strong balance sheet, we do not see any justification for not having a clear premium for IHG versus European peers," Deutsche said.
Analyst at Berenberg hiked their target price on insurance firm Admiral Group from 2,758.0p to 2,938.0p on Thursday, stating 2021 would be an "amazing" year for the stock.
Admiral, which released a trading update on Monday that contained "a positive profit warning" going into its interim, estimates that 2021 interim pre-tax profits will be between £450.0m and £500.0m versus the £286.0m seen in the first half of 2020.
As a result of the announcement, which Berenberg said also "clearly provides a positive read-across to other motor insurers", it opted to raise its first-half estimates by "more than 40%", up to £453.0m.
"Ultimately, Admiral will report amazing numbers for H1 2021 as the company has benefited even more from the pandemic than it was perceived before. The group is also benefiting from a continuing long-term trend of fewer serious bodily injury claims ... and again, much more than expected by the market," said Berenberg, which reiterated its 'hold' rating on the stock.
However, despite this, the German bank still thinks there will be some headwinds to earnings in outer years, driven by a weaker pricing environment and a lack of visibility on reserve releases.
Citi initiated coverage of Beazley at 'buy' on Thursday, stating that after four years of subpar returns, it was time for UK specialty property and casualty insurers to deliver.
"We expect ROEs to improve to 12-16% but with plenty of uncertainty over large loss activity, recessionary positioning and social inflation trends," it said. "At this stage in the cycle, underwriting portfolios continue to be re-underwritten, which is somewhat surprising as management teams adapt to a dynamic environment rather than play offense on capital deployment."
Citi said there is a sense therefore that the growth normally associated with a hard market is passing them by.
"On book multiples of 1.2-1.5x we see valuations mostly discounting improved returns while being vulnerable to loss cost trends and now slowing rate momentum."
Citi said the exception is Beazley, where casualty and cyber rate increases can continue and where a 15%+ return on equity (ROE) is available for 1.3x book.
Analysts at Canaccord Genuity lowered their target price on software firm Redcentric from 190.0p to 180.0p on Thursday following the group's recent full-year earnings statement.
Canaccord noted that full-year revenues at Redecentric were £91.4m, adjusted underlying earnings were £15.2m, just shy of its £15.5m estimate due to disposals, and EBIT margin increased roughly 450 basis points year-on-year as the benefits of a "major restructuring" programme undertaken in the 2019-20 trading year now being evidenced.
The Canadian bank stated that Redcentric's outlook statement indicated a flat first-half in 2022 given "a modest Covid-19 tailwind on the horizon due to increased demand for remote access platforms, additional bandwidth and HSCN connectivity.
It also acknowledged that another UK lockdown in the first quarter of the 2022 trading year meant that larger-scale IT project decisions had been delayed further.
"Overall we forecast c.1-2% growth for FY22E (LFL as a business unit disposed of to Thales is excluded). The current net cash position and the FCF yield over 6% (sector under 3%), combined with debt firepower means 'paper free' acquisitions up to c.£75m are now possible," said Canaccord, which also reiterated its 'buy' rating on the stock.