Broker tips: Go-Ahead, Britvic
(ShareCast News) - Investec upgraded transport operator Go-Ahead to 'buy' from 'add' saying trading in the third quarter was in line with expectations, with the company outperforming the UK market in bus and rail.
However, the brokerage said it was taking a more cautious view on margins in both areas and factoring in higher mobilisation costs, bringing its forecasts down slightly. In turn, this led it to cut its price target to 2,250p from 2,300p.
This gives a forecast total return of 36%, hence the rating upgrade.
"The group remains in a strong financial position with a robust balance sheet and we leave our dividend estimates unchanged," it said, adding that revenue trends were consistent with expectations for the nine-month period to 1 April.
Investec said its revenue estimates remain largely unchanged apart from an increased revenue adjustment at the Govia Thameslink Railway, but it now assumes slightly lower margins for bus and rail.
"We also factor in higher mobilisation costs for German rail in FY18 ahead of operations commencing in June 2019. As discussions around the 5.375% £200m bond are underway, ahead of maturity in September, we trim our interest costs anticipating a new coupon of around 3.0%."
Earlier, Go-Ahead reiterated its expectations for the full as it said service levels on the Govia Thameslink Railway, which it runs, have stabilised following recent industrial action.
In a trading update for the period from 3 July 2016 to 1 April 2017, the company said passenger revenue in GTR fell 5%, but Southeastern revenue was up about 3%, while revenue in London Midland rose around 6%.
Berenberg downgraded Britvic to 'hold' from 'buy', keeping the price target at 725p, following a strong re-rating.
The bank noted that since the start of the year, the shares have risen by around 20%, despite little change to earnings estimates. It said the group had a good start to the year, with a decent first quarter, but simply reiterated that full-year results would be in line with expectations.
"Although we think that risk could be slightly skewed to the upside if trends from Q1 continue, we do not believe that there are sufficient catalysts to drive significant outperformance.
"Therefore, while a small amount of upside to our price target remains, we think the stock looks close to fair value given its relatively weak near-term growth profile."
Berenberg said a strong performance from Fruit Shoot in the US led to substantial international growth in the first quarter, adding that management has an ambitious target to increase multipack distribution points from 7k-8k outlets at end FY 2016 to 13k-15k at the end of this year.
"However, the company has been more conservative about the potential distribution gains from the range reviews set to take place during the spring. Elsewhere, Brazil was tough in Q1 as volumes fell by 8%, although constant currency revenue increased by 8% due to price rises.
"With the macro environment still volatile, we think trading may remain challenging over the coming periods. As such, although the recently acquired Bela Ischia business improves Britvic's platform in Brazil, it may not deliver significant growth if conditions do not improve."