Broker tips: Vodafone, Wetherspoons, Superdry
Broker Kepler Cheuvreux began coverage of Vodafone with a 'reduce' rating and a price target of 180p on the telecoms giant.
Vodafone chief executive Vittorio Colao revealed in May that he will step down later this year, after ten years in charge, to be replaced by chief financial officer Nick Read. This was announced alongside a solid set of annual results, with Colao having returned the group profit and guided to further growth in 2019 despite sales being held back by increased competition in Italy and Spain.
The FTSE 100 group appears to be positioning itself in its various markets as an alternative to domestic incumbents, analysts said, which will require it to buy and build additional scale.
"These moves, combined with its relatively high dependence on wholesale access, suggest that short-term convergence will likely remain a low-return opportunity."
Despite its convergence push, the company is still mostly focused on mobile, meaning growth depends on its monetisation of mobile data.
"The combination of higher capex, a lack of data monetisation, M&A leverage and upcoming spectrum auctions, entail risk to cash flows and ultimately the dividend; risks that, in the event of a deal with Liberty, would not be sustainable," analysts wrote, suggesting yield-hunting investors would be better served elsewhere.
There is "more to come" from JD Wetherspoon, reckons broker Peel Hunt as it upgraded the pub company on the back of a trading statement on Wednesday.
Over the first 49 weeks, the FTSE 250 pubco said like-for-like sales grew 5.2%, with LFL sales so far in the final quarter being up 5.2%, with a good chunk of the improvement due to favourable weather and the World Cup.
Peel Hunt said this was ahead of its previous 4.5% full year assumption, and the 4.5% increase in total sales was also better than expected.
Analysts increased their full-year forecasts slightly, with profit before tax upped to £108.1m from £106.9m, above the City consensus of £105.3m, believe Wetherspoons' upgrade "is cautious; there should be more to come".
There was no update on margins in the trading update, "but the risk here is on the upside", the analysts said, with cost pressures including rising labour costs, utility levies, business rates and the sugar tax well documented and already factored into forecasts.
"The extra sales growth has not been fully factored into our above-consensus forecasts."
For 2019, Spoons needs 3-4% LFL sales to hold profits before cost mitigation, similar to 2018. "Any upside to 2018E forecasts should flow through to 2019E, a year in which we assume LFL sales rise by 3.0%."
Peel Hunt raised its target price to 1,300p from 1,200p, and its recommendation to 'add' from 'hold' .
Superdry's de-rating is overdone and the valuation is now attractive, Deutsche Bank on Wednesday as it upgraded the clothing brand to 'buy' from 'hold' and lifted the price target to 1,610 from 1,430p.
The bank said that like the company's pricing policy, its share price now reflects value for money after concerns around its store like-for-like performance and its brand health sparked a de-rating of over seven price-to-earnings points since January.
DB noted that at the start of the year, Superdry shares were at all-time highs and its price-to-earnings was trading near two-year highs. Since then, the stock has lost 35% of its market cap, it trades near five-year PE lows and at a significant discount to the UK general retail sector.
"At 12.2x calendar 18 earnings, it trades in line with Next and M&S. However, with double-digit profit growth forecast as well as a long-term global opportunities, Superdry's investment thesis is far more exciting.
"We believe now is an attractive entry point into a story with self-help opportunities, margin expansion potential and strong cash generation."
In addition, Deutsche said Superdry's cash return outlook has also improved and it sees scope for special dividend payouts in FY19 and FY20 driven by strict capex criteria and working capital improvements.
Earlier this month, Superdry announced a special dividend as it reported a rise of more than 11% in annual profit.
Underlying pre-tax profit for the year to 28 April jumped 11.5% to £97m, in line with expectations, as revenue increased 16% to £872m. Statutory pre-tax profit fell 23% to £65.3m because of fair value movement on forward exchange contracts and a write-down on the value of a Berlin store.