Broker tips: Ryanair, Wizz Air, Royal Mail
JPMorgan Cazenove upgraded its stance on shares of Ryanair on Monday, arguing that the budget airline is a long-term winner in European aviation with its "fortress balance sheet" and ultra-low costs.
JPM, which lifted Ryanair to ‘overweight’ from ‘neutral’ but cut the price target to €15.30 from €16.75, also reiterated its ‘overweight’ stance on Wizz Air. It said that with Covid-19 infection rates falling in the major European countries and airlines returning capacity to service, airline stocks have meaningfully bounced from their April lows.
"However, significant risks remain: a potential return of Covid-19 across Europe, with unpredictable government responses; the likelihood of large losses in the winter season; and a weakened European economy.
"Against this backdrop, we see RYA and Wizz as the most attractive European airlines. Both have strong balance sheets, can grow through expansion and market share gains, and will use the current crisis to cut costs."
JPMorgan cut its price target on Wizz to 4,150p from 4,700p.
It said Ryanair is likely to use the current crisis to negotiate better terms from airports and, potentially, to place a major new order with Boeing at a very attractive price.
Analysts at Liberum slightly raised their target price on 'sell' rated postal service Royal Mail Group on Monday, stating that risks to its UK operations outweighed resilience in its European arm, General Logistics Systems (GLS).
Liberum said the outlook for Royal Mail's UK parcels, international and letters (UKPIL) unit was as bad as it had feared, with Covid-19 accelerating previous structural headwinds, but did acknowledge that GLS was proving "surprisingly resilient", leading it to nudge its price target on the group from 105.0p to 115.0p.
However, even as the Covid-19 pandemic already had "a significant impact" on Royal Mail's business, Liberum noted that across both UKPIL and GLS, there had been strong growth in business-to-consumer parcel volumes and although business-to-business volumes were "generally weaker", the group had still seen a net increase overall.
The analysts also highlighted that hopes GLS could be sold or spun off to shareholders had not been fulfilled and that Royal Mail's relationship with the Communication Workers Union was still in the process of being mended.
While Liberum noted that changes to Royal Mail's universal service obligation specification could aid a return to financial sustainability, it said they also risk alternative solutions that do not involve Royal Mail at all.
"We reiterate our 'sell' recommendation, but increase our discounted cash flow-based target price to 115p from 105p on capex cuts and better GLS forecasts," said the analysts.