Broker tips: Meggit, easyJet, Ryanair, Moneysupermarket
Berenberg downgraded its stance on Meggitt to ‘hold’ from ‘buy’ on Tuesday and slashed the price target to 490p from 695p, arguing that the valuation is constrained.
Berenberg said Meggitt’s 2020 guidance was slightly cautious in recognition of COVID-19 risks and the slower recovery of the 737 MAX programme, but pointed out that air traffic has since collapsed.
The downgrade of Meggitt was part of a broader note on the aerospace and defence sector in which Berenberg also reviewed MTU Aero Engines and Safran.
Berenberg said it expects Meggitt’s valuation to be capped in the short term while air traffic data remains grim, hence the downgrade.
Longer-term, however, it said Meggitt's fundamentals are "attractive" and once the industry has more clarity over the impacts of the coronavirus outbreak, it expect the shares to rerate.
Berenberg noted that the stock is down 26% year-to-date and 27% in the last month, despite the strong 2019 results out on 25 February.
Bernstein lifted its rating on easyJet and Ryanair on Tuesday, arguing that the largest carriers were unlikely to go bust.
The bank upped easyJet to ‘outperform’ form ‘market perform’ but cut the price target to 1,300p from 1,450p. It also boosted Ryanair to ‘outperform’ from ‘market perform’, cutting the price target to €13.30 from €15.00.
The bank noted that the outbreak of the coronavirus and its spread has pushed airline stocks off a cliff, with EU airlines down 38% since the start of the year.
"While the near-term risks are high, we do not see meaningful danger for EU's largest airlines to go bust. Provided the virus is contained by summer and the global economy does not go into a tailspin, EU airlines are a buy," it said.
Analysts at RBC Capital Markets upgraded Moneysupermarket from 'underperform' to 'sector perform' on Tuesday, stating that the group's risk/reward scenario was now "more balanced".
RBC, which also upped its price target on the group from 300p to 320p, said it was lifting its estimates for Moneysupermarket primarily on an improved revenue outlook - including the launch of its new auto-switching product.
Following Moneysupermarket's 2019 full-year results, RBC also raised its 2020-22 revenue estimates by 4-6%, primarily reflecting an improving backdrop for the segment. However, the analysts noted this would be somewhat offset by a planned increase in marketing spend, which overall lead it to a 3-5% upgrade to its adjusted underlying earnings forecasts.
While the Canadian broker said it continued to see downside risk to earnings, it now believes the firm's recent share price weakness left it in a more balanced position.
"Our FY20-21 EBITDA forecasts remain 3-4% below consensus, and implies c.1% growth in FY20, before recovering to +5% in FY21/22e. We expect MONY's adjusted EBITDA margin to decline by almost 200bps in FY20e driven by gross margin pressure (shift to mobile, for which conversion is lower, and shift to paid search) and a step-up in brand marketing spend," said RBC.