Broker tips: The Restaurant Group, Domino's Pizza, BT
As part of a cross-sector report on Friday, Berenberg highlighted the big shift in consumer demanded for purchased items to come to them, something analysts believe will put several UK mid-cap outfits in a position to take advantage of emerging structural trends.
Over the past decade, Berenberg said the face of the UK retail sector had "changed dramatically", with consumers prioritising convenience in their decisions on how and where they purchase goods - with more Brits choosing to buy items from the comfort of their home, as opposed to brick and mortar sites.
When specifically discussing eateries, Berenberg upgraded The Restaurant Group to 'buy' following its recent acquisition of Asian food chain Wagamama despite noting the deal appeared to initially be "value-destructive".
Berenberg believes the market's reaction to the deal, which took shareholders by surprised when it was announced, was "overdone" and said the group can still achieve its aims and feels that at its current price it is possible to buy into a company that will deliver "comfortably double-digit profit growth" and includes one of the highest-quality UK consumer brands with "years of expansion ahead of it".
"As the company delivers on its plans for Wagamama and the wider business, we think the stock should re-rate," the analysts said.
On the other hand, over at pizza giant Domino's, Berenberg was a little warier as it downgraded the group from 'hold' to 'sell' and took a 40p slice out of its target price, dropping it to 220p per share.
Berenberg said Domino's recent trading update had brought up "many of the same problems" that had hampered the company for the past two years, namely the deteriorating relationship with franchisees and the struggle to profitably grow overseas.
"In our view, the capital markets day that followed on 29 January failed to adequately address these issues and did not comprehensively demonstrate that Domino’s will take advantage of the growth of the UK food delivery market."
As a result of this, Berenberg believes that through a combination of a slowing UK roll-out, further international losses and potentially subdued like-for-like growth at home, earnings estimates will continue to decline.
Elsewhere, as regulatory clarity nears, BT Group is worth 340p per share, said Jefferies on Friday, reiterating its 'buy' rating.
Jefferies observed that regulator Ofcom has endorsed principles of "fair bet" fibre-to-the-premises returns and is likely to define enablers needed to support investment by the middle of this year.
"BT's cautious outlook conveys an appropriate tone at this time," said Jefferies.
BT already faces a raft of consumer headwinds in the 2018/19 financial year, including Champions League inflation, back-book repricing since September, price cuts for around 1m landline-only users, mobile bill limits and the tail-end of roaming regulation - while next year brings a full-year impact of back-book repricing, no price increase for BT brand fixed/mobile, auto-compensation, a higher licence fee and price caps on intra-EU calls.
But Openreach headwinds are about unwind rapidly as generic ethernet access (GEA) price controls lap out from April and volume discounts from August/September. "With fibre adoption growing and mix shifting to faster products, Openreach should return to growth in 2H19/20."
A 'regulatory asset base' return approach to valuing Openreach "is credible", the analysts said, pointing out that Ofcom permits a 12%-14% pre-tax target return for FTTC and may consider a small premium for FTTP.
Deployment to 1m premises per year should deliver RAB growth of £0.7bn per year and blending premium FTTP with lower target returns on other services, percolates through the financial model to a £22.5bn Openreach enterprise value and delivers a 340p sum-of-the-parts value for BT.