Broker tips: Morrisons, Sainsbury's, Oxford BioMedica, Royal Mail, IAG
Berenberg double-downgraded its stance on Sainsbury’s to ‘sell’ from ‘buy’ on Tuesday but lifted Morrisons to ‘buy’ from ‘hold’ as it took a look at the food retail sector.
"While our analysis indicates that the grocers can achieve absolute profit growth at their retail businesses, and the UK grocers are best positioned through the business rates ‘holiday’, we expect them to mitigate these benefits as all the grocers in our coverage would face external pressures if they demonstrated exceptional profit growth," it said.
The bank said it expects Sainsbury’s non-food retail exposure and banking business to drag on performance, adding that grocers with banking businesses have been overlooked by the market.
"Their unsecured lending exposure will have to book significant loan losses and may require substantial capital injections in order to maintain sufficient liquidity," it said.
Berenberg said Morrisons will benefit from increased food demand, its limited non-food exposure will have a lesser drag, the wholesale business will be a beneficiary of sector consolidation and its balance sheet strength provides dividend security.
Morrisons’ target price was upped to 213p from 200p while the target on Sainsbury’s was cut to 170p from 250p.
Analysts at Liberum hiked their target price on gene and cell therapy company Oxford BioMedica from £8.60 per share to £10.90 on Tuesday, citing demand at its new OxBox manufacturing facility.
Liberum said Oxford Biomedica had made "enormous progress" since its initiation of coverage in 2019, highlighting the completion of the new OxBox manufacturing facility for having already unlocked demand for future capacity.
The broker stated that with Oxford Biomedica now working in collaboration with the Jenner Institute consortium as a manufacturing partner for its potential Covid-19 vaccine, while it was "too early to estimate its potential", the move still represented a 12-month upside option.
Liberum also pointed out that late last year, Novartis extended its vector collaboration with the group, and in March, Juno Therapeutics chose OXB as its vector partner.
In addition to upping its price target on the group, Liberum also reiterated its 'buy' rating on OXB.
Citi upgraded Royal Mail to 'buy' from 'sell' after parcel volumes increased during the Covid-19 lockdown and the company's shares fell further than its peers.
Along with its "double upgrade", Citi increased its target price on Royal Mail shares to £2.10 from £1.50.
Citi pointed out that Royal Mail, the leading parcels operator in the UK with more than 50% share of the delivery market, has the majority of the business-to-consumer market in the UK and abroad through its GLS parcels division - making the unit its "crown jewel".
The company was "acutely exposed" to the increase in e-commerce that has taken place during the Covid-19 crisis, Citi said. British Retail Consortium figures show online non-food sales up almost 19% in the five weeks to April.
For every 1% rise in annual volumes Royal Mail earnings increase by 20%, Citi said. The bank expects parcel volumes to rise 9% in Royal Mail's fourth quarter, which ended on 31 March, and for volumes to increase 13% in 2021. Both estimates are ahead of consensus. Those forecasts mean Citi's estimate for 2021 operating profit is 400% more than consensus, it said.
"We double upgrade Royal Mail to buy and revise our target price to £2.10. Our upgrade is predicated upon two points: 1. A significant and recent acceleration in parcel volumes; and 2. An attractive and nuanced valuation," Citi said.
Analysts at Deutsche Bank touted shares of International Airlines Group as a short-term buy idea after their valuation fell below their long-term average and in anticipation of a recovery in earnings coming out of the Covid-19 induced recession.
With the shares trading at an enterprise value-to-forward earnings before interest, taxes, depreciation and amortisation multiple of just 3.7, they now saw scope for a roughly 20% rise, labelling the current valuation as "attractive".
Over the past 10 years, the shares had changed hands on a EV/EBITDA multiple of about four, they pointed out.
"We see scope for improved share price performance as European lockdown restrictions are gradually relaxed.
"'Early cycle' multiple would be more appropriate for network airline profits, which we expect to be recovering following a coronavirus-induced recession."