Broker tips: Travis Perkins, Imperial Brands
Analysts at Canaccord Genuity upped their target price on builders' merchant Travis Perkins on Thursday, stating the firm's good start to the year justified its recent re-rating.
Canaccord felt Travis Perkins' solid start to the year, helped by a weak comparative, which should also benefit trading throughout April, gave it reason to be "more confident" with its full-year forecasts for the group.
The Canadian broker also said that it was "very reassuring" that markets had not fallen away on macro issues, so far, but did note that underlying markets remained "challenging with limited visibility".
"Looking further out and over and above macro issues, we believe the investment case for Travis continues to rest more on the growth and margins achievable in the core trade businesses, and the timing and sales proceeds of plumbing and heating, and in all likelihood Wickes," said Canaccord.
The analysts tweaked their estimates and, given the good start to the year, as well as the recent sector re-rating, they edged their price target up to 1,430p from 1,350p.
"However, unless good margin improvement is delivered in the core trade businesses and the non-core businesses are sold for a good price, valuation looks fair to us," Canaccord added.
Meanwhile, analysts at Citi reiterated their 'buy' recommendation for shares of Imperial Brands despite what they conceded was a "disappointing" set of results.
For Adam Spielman, Ravi Sharma and Anna Frontani, the stock market overreacted to the figures and, changing hands on less than eight times' his estimates for calendar year 2019 profits, the shares were "too cheap".
Nevertheless, they cut their forecasts for the company's sales of next-generation products in fiscal years 2019 and 2020 to £350m and £480m, respectively.
The expected organic rates of growth in Imperial's sales also came down for those two years, to 3.2% and 2.9%m although Citi was "confident" that they would improve.
On the other hand, the company's credibility had taken a knock and would take time to recover, the broker said.
"Clearly we’re disappointed by the share price since our upgrade, but the basic argument remains: Imperial is in a better place than it used to be, and as such we think the shares are too cheap.
"That said, we think the company’s credibility is reduced and it’s likely to take several quarters to recover. We can’t see a near-term catalyst."