Broker tips: Boohoo, Mediclinic, OneSavings Bank
Bank of America Merrill Lynch initiated coverage of fast fashion retailer Boohoo with a ‘buy’ rating and 280p price target on Thursday.
The bank said Boohoo offers exposure to three important structural trends in apparel: a shift to online; consumer demand for value; and a move from fast to faster fashion, owing notably to the strong sourcing background of its founders.
Merrill noted that group revenue has grown fourfold the past four years and said it expects revenue to triple again in the next five years, making it the fastest-growing company in its coverage.
It pointed out that Boohoo trades on 27x 2019E EV/EBIT, a discount of around 20% discount to online peers, which it reckons is unjustified considering its superior business model and growth profile.
"In addition, boohoo only trades at a 40% premium to traditional retailers who are significantly more challenged given increased fragmentation aided by social media & e-commerce and margin pressure as sales shift online.
"In the medium term, we see scope for Boohoo to become an acquirer of small online brands, which would present incremental upside to our earnings and valuation," Merrill said.
Barclays called Mediclinic International's latest trading statement disappointing, leading it to cut its price target on the stock to 460p.
The bank has also reduced its rating on the London-listed South African healthcare provider, to 'equal weight' from 'overweight'.
On Wednesday, the FTSE 250 company warned that full-year profit margins would miss expectations because of weak growth in Switzerland, one of its core markets. It said group revenues were ahead just 1% for the first half, with weaker-than-expected growth in Swiss inpatient admissions and revenue per bed down 2.8%.
In a note published Thursday, Barclays said it was "disappointed" by the update, noting that it had left the bank "less confident in the recovery story".
"While we acknowledge the seasonality in Switzerland, we believe the company will be hard pressed to achieve a full-year margin of 16% having posted a 14.3% margin in the first half. We see further deterioration in the insurance mix as a clear downside risk to the Swiss margin target."
OneSavings Bank got a boost on Thursday as Macquarie lifted the stock to 'outperform' from 'neutral' and upped the price target by 9% to 464p.
It said the outlook is for fading but still strong growth and returns, which is not adequately rewarded in the share price.
"Relative to other UK financial services companies, OSB is growing fast and generating notably high returns, which we believe should be reflected in the share price over time," Macquarie said.
It said OSB's focus on the professional landlord buy-to-let market is continuing to deliver strong growth, with margins sufficient to deliver high returns of more than 20%.
"Powerful organic capital generation, which in the medium term should be boosted by the adoption of the internal ratings-based approach to risk weighting assets, allows the group to self-fund its growth profile."
The bank bumped its earnings per share estimate for 2018 by 1.5%, for 2019 by 5.3% and for 2020 by 0.4%, mostly due to higher than previously expected future volume growth.
"Over time, OSB is diversifying both its asset and funding base, which should lead in due course to a reduction in its cost of capital. The development of new business lines should also support the ongoing top-line expansion of the group in the event that the professional BTL market slows."