Broker tips: Direct Line, Ten Entertainment, Fulham Shore
Direct Line surged on Wednesday after a double upgrade to 'buy' from 'sell' at Citi, which said that its industry channel checks give it more confidence on 2023 motor earnings.
Citi said the share price decline of around 40% year-to-date and a 32% reduction in 2023 consensus earnings per share estimates meant the risk was now skewed to the upside.
"We believe there is sufficient solvency self-help to avoid an equity raise, that the motor pricing cycle has bottomed out, and DLG’s current circa 5.3x 2024E price-to-earnings represents an attractive entry point," it said.
More broadly, Citi stated it believes consensus motor earnings have now sufficiently reset following FY22 results and that we are at the bottom of the motor pricing cycle.
Analysts at Berenberg raised their target price on ten-pin bowling centres operator Ten Entertainment from 350.0p to 380.0p on Wednesday, stating the group was "rolling along nicely".
Berenberg said Ten Entertainment had delivered a "strong set of FY22 results" on 22 March, in line with its January trading update, as it continued to capitalise on the trend towards "experiential leisure".
Like-for-like sales were easily ahead of strong prior year numbers, while costs also appeared to be "well managed".
"As we look into FY23, we believe that Ten Entertainment's sales growth, pipeline, and balance sheet are in a good position to take advantage of the opportunities available in the UK bowling market," said Berenberg.
However, the German bank stated its preference in the sector remains with Hollywood Bowl, it maintained its 'buy' rating on Ten Entertainment as it updated its numbers on the stock
"We adjust our numbers to reflect the reported FY22 estimates. As a result, our sales estimates increase by 7%/10%, EBIT estimates by 15%/13%, and EPS estimates by 15%/12% for FY23/FY24, respectively," concluded Berenberg.
Over at Shore Capital Markets, analysts downgraded Franco Manca owner Fulham Shore from 'buy' to 'hold' on Wednesday after the group received an all-cash offer from Japanese conglomerate Toridoll.
Shore Capital said Toridoll's £93.0m offer - 14.15p on a per share basis - for Fulham was in line with its own fair value estimates and, given the current trading backdrop, also looks "very much as expected".
"Although a control premium would typically be warranted, on balance, we cut to a 'hold' noting the high preliminary proportion of intent and irrevocable undertakings totalling almost 50% of the voting rights," noted Shore Cap.
It also said it feels on this basis, Fulham Shore's directors were happy with the offered price and unlikely to go for "a bigger bite of the cherry" but did note that a third-party counteroffer was still possible.
"The acquisition values the entire issued and to be issued ordinary share capital of Fulham Shore at approximately £93.4m on a fully diluted basis which translates to 14.15p for each Fulham Shore share. As such, this represents a premium to yesterday's closing price of 10.5p of circa 35% and is consistent with our fair value of 14.5p."