Broker tips: Greggs, Morrison's, Hostelworld
UBS upped its rating on shares of bakery chain Greggs to 'buy' from 'neutral' on Wednesday, lifting the price target to 2,300p from 1,880p as it pointed to "significant" growth opportunity.
The bank had downgraded Greggs to 'neutral' back in February as it reckoned the strength of like-for-like growth seen through January was the result of the vegan sausage roll launch and was likely to normalise quickly.
"However, we have since seen LFL growth remain strong, still running at circa 9% for the last seven weeks of Q2 despite the initial publicity around the vegan sausage roll subsiding, and with comps strengthening after the weather impact in Q1-18," it said.
Given the strength of trading six months on from the vegan sausage roll launch, UBS said it has greater confidence in the outlook.
"In particular, we see potential for over 2,500 stores, with the latest UBS Evidence Lab geospatial analysis showing stable and lower cannibalisation than peers. In addition, Greggs is well-positioned to drive like-for-like growth given slowing competitor openings, increased investment in strategic initiatives announced with H1 results, and leading value perception."
It said that while a lack of further profit upgrade with the first-half results - in part due to greater expected investment - may have contributed to recent share price weakness, this represents an entry point for "a high-quality, multi-year, growth story".
Investec upgraded its rating on Morrisons shares to 'buy' from 'hold' on Wednesday as it took a look at the UK supermarket sector, arguing that current weakness is unwarranted.
Investec, which lifted its price target on Morrisons to 240p from 230p, retained its 'buy' calls on Tesco and Sainsbury's, upping their price targets to 270p from 255p and to 280p from 265p, respectively.
It maintained its 'sell' stance on Ocado, with an unchanged price target of 880p.
"Having reviewed the possible impact of Brexit-driven changes in consumer spending patterns, tariffs and supply chain disruption, we believe that the current weakness in the supermarket sector is unwarranted," it said.
"While there is currently undoubtedly nervousness on companies with large UK exposure, we still feel the sector offers compelling value."
Investec said the sector had been oversold and it's now time to either be positioned to buy into or increase positions in UK supermarket stocks in anticipation of a conclusion to, or greater visibility on Brexit.
Analysts at Shore Capital Markets noted that despite many verticals of online booking platform Hostelworld's turnaround strategy being "on track", improvements in booking volume were still behind expectations, leading to the company's lowered full-year guidance, but stayed at a 'buy' on its shares.
Hostelworld had announced its interim results for the six months ended 30 June during the previous week and ShoreCap said the update had provided an opportunity to highlight the current progress since the implementation of its "roadmap to growth" strategy.
"Despite many of the verticals being on track, improvements in booking volume are reported behind expectations and therefore causing lower guidance for full-year numbers," noted ShoreCap
The first half of Hostelworld's trading year had been "negatively impacted" by a competitive market space, resulting in a 5% decrease in total bookings to 3.75m, a 9% fall in revenues to €38.8m and a 15% decline in adjusted underlying earnings to €8.9m
But despite that, ShoreCap said the underlying pattern of marking its 2019 figures as the nadir before returning to growth in 2020 was "still present".
"We remain optimistic about the outlook and the company's potential for using its unique position to capitalise within hostel market," said the broker, which issued the group with a 'buy' rating and a 138p price target.