Broker tips: National Express, Dr Martens, Ocado
Analysts at Canaccord Genuity raised their target price on public transport provider National Express from 255.0p to 330.0p on Wednesday, stating it was "increasingly confident" that the firm's financial performance will "largely return to normal" in 2022.
Canaccord, which reiterated its 'buy' rating on the stock, said National Express remains, a "quality operator", in its view, with strong customer relationships and best-in-class margins in virtually all its businesses.
The Canadian bank highlighted that National Express had no liquidity concerns and believes the company to be "well-positioned" to bounce back strongly once the Covid-19 pandemic can be brought under control.
"Even though we are reducing our estimates for 2021, we expect the group's financial performance to bounce back strongly in 2022 to approach pre-pandemic levels," which cut its full-year earnings forecasts for National Express from £365.9m to £320.3m.
Canaccord also said it was "increasingly confident" that trading conditions will largely revert to normal by next year, leading it to switch its valuation methodology from a discounted cash flow-based sum-of-the-parts to an earnings multiples-based approach and amend its target price as a result.
Broker Peel Hunt initiated coverage of Dr Martens on Wednesday with a 'hold' rating and 475.0p price target, as it said the company embodies everything it looks for in a brand.
"Dr Martens is in our sweet spot of compelling consumer brands with a defined unique selling points, attractive return on capital employed strong cash generation and good runway for growth," Peel said.
"DM generates attractive underlying margins (c27% EBITDA), resulting in strong levels of cash conversion."
The broker added that DM has a well-established international platform, with good prospects, underpinning mid-teens earnings per share growth and a yield.
Peel Hunt stated it would be a buyer of the shares on weakness, but at around 32x price-to-earnings ratio, a lot of the positives are already priced in, hence the initiation at 'hold'.
Barclays reiterated its 'underweight' rating on shares of online supermarket Ocado as it said it was disappointed and surprised that "2020 did not see any new deals inked".
The bank noted that Ocado's £20.0bn valuation depends on it building a steadily bigger pipeline of Customer Fulfilment Centre orders. Although the early evidence is that its first international facilities are working well and will generate follow-on orders, Ocado will likely need to attract new grocery customers to justify the valuation, it said.
"It is, therefore, something of a paradox that the significant growth seen by the online grocery sector in FY21 has not seen additional corporate customers added to Ocado's platform," Barclays said. "Deal flow is by nature lumpy - and we take the point that limited international travel is not helpful in sealing deals - but we remain surprised that 2020 did not see any new deals inked."
Barclays, which has a 1,600.0p target price on the stock, said it still believes the valuation discounts a volume of CFCs which may err on the side of optimism and noted that the FY21 Annual Incentive Plan for management includes a slightly lower weighting on 'new Solutions commitments', at 25% rather than 30%.