Broker tips: EasyJet, NMC Health, Greggs
Liberum upped its target price on low-cost carrier EasyJet on Tuesday, but despite the airline's "strong long-term fundamentals", the broker remained cautious regarding its short-term prospects.
Liberum bumped its target price on EasyJet up to 1,350p from its previous 1,250p marker as it continues to see the budget airline as being amongst the "long-term winners in the European airline industry".
"It has a well-developed network focussed on slot-constrained primary airports in attractive cities. These offer strong demand for air travel for diverse purposes, protected by barriers to entry and competing predominantly against legacy airlines with less efficient cost bases."
On the other hand, Liberum analysts warned that recent moderation in fuel prices, if sustained, could provide some relief to EasyJet's weaker competitors.
While unit revenues were under pressure in the winter against tough comparatives flattered by Easter timing and the demise of Air Berlin and Monarch, Liberum said Summer "remains the key to profitability".
"But while forward bookings are stronger, revenue visibility remains limited. We update our fuel cost assumptions for the recent moderation in prices, which sees our earnings estimates rise by 6-14%."
Liberum also reiterated its 'hold' rating on the company's stock.
Jefferies has adopted a more cautious approach to blue chip NMC Health, cutting its rating to ‘underperform’ over a range of concerns, including corporate governance.
The bank said that NMC, a healthcare provider based in the United Arab Emirates and listed in London, was “a well-loved story”.
It continued: “Attractive healthcare fundamentals in the UAE, expansion of the highly profitable IVF segment and close ties to the Saudi government ahead of anticipated privatisation, all translate into double-digit earnings growth on which there is little to no to no tax.”
But Jefferies had “concerns”, including “increasing risks if the company continues on the same path, down which it looks to be accelerating with the recent Aspen and GOSI deals. Hence we believe the market is overestimating the value-creation potential.”
Other concerns flagged by Jefferies include NMC’s expansion into Saudi Arabia, where there is higher reliance on government pay, declining expat population as well as competition from established players.
The analysts also highlighted corporate governance concerns with "an increasing focus on EBITDA in both STIP and LTIP and the removal of EPS to be alarming, especially given net income as a percentage of EBITDA has declined from 78% to 53% in 2012-17" and hoped measures will be "addressed by the remuneration committee".
Jefferies cut its price target for NMC to 2,940p from 3,411p.
Analysts at Peel Hunt upgraded Greggs to 'hold' from their previous rating of 'reduce' on Tuesday after the fast-food chain turned in October and November performances that were "significantly ahead of expectations".
The broker said Greggs' patchy spring was "now a distant memory" and owned up to over-reacting to it.
Very much against the run of retail play, Greggs has announced that its performance in October and November has been significantly ahead of its expectations, wrote analysts Jonathan Pritchard and John Stevenson.
"This is clearly a very consistent performer and with a decent upgrade today it’s clear that our negative stance is wrong."
Peel Hunt credited the turnaround to Greggs' newer ranges and improved staff training, which has meant that queue lengths were falling, reducing the number of customers taking a look at the line and going elsewhere.
While the broker was positive regarding Greggs' future prospects, Peel Hunt said: "it's not all in the bag yet, and the next few weeks remain crucial".
Peel Hunt, which also significantly boosted its target price on Greggs's shares to 1,300p from 950p previously, added: "At first glance, we were tempted to go further, but the valuation at the shares' current levels doesn’t appear to have much upside.
"The cash generation, however, will be highly attractive to some and there are many worse places to be if the top down view is a nervous one."