Broker tips: Informa, JD Sports, Sports Direct, Hikma Pharmaceuticals
Kepler Cheuvreux upped its stance on Informa to 'buy' from 'hold' on Monday following an "encouraging" 10-month trading statement from the events and publishing company.
Kepler said the update brings into focus the 20% valuation gap versus professional publishing peers for only a marginal difference in organic growth. It highlighted organic growth of 3.5% for Informa versus 4% for Relx and Wolters Kluwer.
Kepler said the exhibitions business continues to grow "nicely" at around 4% to 4.5%, with bookings for 2019 events up with previous versions at this stage of the year. Meanwhile, the Middle East portfolio, cited as weak earlier in the year, has not deteriorated, although it has not improved materially either.
"The full-year outlook for the UBM business has not changed (3% organic growth for the group and 4% for the events business, which implies an acceleration into year-end, versus +2.3% and 3.4% respectively at 10M, due to the back-ended timing of faster-growing shows), with many of the leading shows growing as fast as anything that Informa has to offer."
Kepler left its price target for Informa unchanged at 810p.
Sports retail is a sub-sector generating attractive growth for the likes of JD Sports as the dynamics between brands and retailers change, Berenberg said as it initiated coverage, while rival Sports Direct is seen as being at risk from Amazon.
Sports Direct is, in the minds of Berenberg's analysts, "most exposed to the threat from Amazon", with the US behemoth now the second-most visited UK sports retailer, armoured with partnerships with Nike and Adidas in the US.
"Amazon is already better than Sports Direct on product range, price and convenience," Berenberg said, with Sports Direct's online proposition the weakest compared to peers.
JD, meanwhile, scored the highest and has a best-in-class digital offering, the analysts noted, something that is valued by brands.
Driving the outperformance of sportswear over the last five years above the broader apparel and footwear category has been the consumer shift towards healthy living, sports and fitness.
"These drivers are not slowing down – if anything, they are accelerating. Contrary to fears among some investors that sportswear’s outperformance could cease, or even reverse, we forecast at least a 3% compound annual growth rate over the next five years, with upside risk," Berenberg said.
As recent results from Nike and Adidas have shown, sports brands are increasingly selling direct to the consumer, creating a major new threat to sports retailers - "but not for everyone", the analysts said.
Brands are expected to increase their best product allocations to key “differentiated” strategic partners, which will shift them away from lower-quality wholesale partners. JD is one of just two global strategic partners for Adidas and Nike, whereas the analysts felt Sports Direct’s "strained relationship with the brands will, we think, leave it exposed".
All in all, JD Sports was given a 'buy' rating based on a price target of 530p while Sports Direct was initiated at 'sell' at a target of 270p.
Hikma Pharmaceuticals was under pressure on Monday as Peel Hunt cut its stance on the stock to 'hold' from 'add' saying that strong upgrades were already in the price.
Hikma upgraded its 2018 guidance in its third-quarter update last week, leading Peel to up its earnings per share estimates for 2018-22 by 5-21%, putting the brokerage 8-23% above consensus. However, it said that given Hikma's strong year-to-date performance - the shares are up 68% in absolute terms and 76% versus the FTSE - the upgrades are largely in the price.
Peel Hunt, which lifted its price target on Hikma to 2,000p from 1,950p, noted that the stock is now trading at a 20%+ premium to the average peer EV/EBITDA. Historically it has traded on a 4% discount, the brokerage said.
"Likewise, Hikma’s 12-month forward price-to-earnings and EV/EBITDA have rebounded strongly from early 2018 lows to above historical average levels," it said.
The brokerage said its price target increases only slightly as lower peer multiples, driven by broader market weakness, have offset its higher estimates.
"Our discounted cash flow implies a 2,300p valuation (more than 20% upside), and so Hikma’s shares could still appreciate when wider market sentiment recovers," said Peel. However, it reckons that the 2019 guidance next March will have to drive another round of strong consensus upgrades to support significant outperformance of the stock from here.