Broker tips: FirstGroup, The Mission Group, Flutter Entertainment

Analysts at Berenberg raised their target price on transport group FirstGroup from 170.0p to 185.0p on Monday, stating a recent depot visit had reaffirmed their positive view of the business.

Berenberg said FirstGroup was a "market-leading UK bus and rail business", which has reported stronger-than-anticipated demand, especially in FirstRail, during its post-close trading update in October. The German bank pointed out that this has led to guidance upgrades for adjusted operating profits and adjusted attributable profit.

However, while Berenberg noted that FirstGroup shares were now up by 43% year-to-date, it continues to see value in the stock given the "continued positive trends" in the bus and rail businesses, consistent upgrades, as well as the "strong balance sheet optionality" and headroom for further investment looking ahead.

Berenberg also highlighted that a recent site visit had further emphasised this view, given the steps the company was taking in terms of electrification, which could also open up further revenue adjacencies.

"Given the strong performance in H1, FirstGroup expects adjusted operating profit and adjusted attributable profit to be £14.0m-20.0m and £7.0m-10.0m higher respectively. This profit was driven by continued growth in open access and a higher variable fee from the fee-based contracts as well as good trading in FirstBus. As a result, we upgrade our estimates for FY24 and now expect operating profit of £193.0m and adjusted attributable profit of £97.0m, respectively," said Berenberg, which stood by its 'buy' rating on the stock.

Over at at Canaccord Genuity, analysts downgraded advertising agency The Mission Group from 'buy' to 'speculative buy' on Monday and cut its target price on the stock from 61.0p to 55.0p, citing a dip in demand.

Canaccord Genuity said that whilst Mission anticipated "a more encouraging outlook" with interims last month, it has since seen a "sharp and sudden" reduction in client spend, where deferred spending and some customer churn has led management to now adopt a "materially more cautious" outlook for the remainder of the year.

As a result, Mission has enacted an operational review, the main cost benefits of which it expects in the next trading year, and has also indicated proposals to dispose of non-core businesses which, if successful, should further remove costs while proceeds improve the "highly geared" financial position.

"We tweak our FY23E revenue to reflect inorganic contributions, whilst the increased cost base in anticipation of revenues now lost/reduced/deferred and a higher interest charge is expected to deliver adj. PBT of £3.1m (vs previous CGe £7.9m). Further, working capital outflows before YE are set to raise net debt to £24m, placing the group in contravention of its debt limits, where management is working with the bank for a resolution," said Canaccord.

"As such, it is focused on reducing the debt balance, canceling the interim dividend and identifying both immediate and long-term cost savings, whilst any non-core disposals should further improve the financial position."

Exane BNP Paribas has named Flutter Entertainment as its top pick in the gaming sector ahead of third-quarter earnings season after a recent rough patch for the industry.

Profit warnings in Europe – including UK-listed peers Entain and 888 Holdings – and market share volatility in the US have weighed on share prices over recent months.

As of Friday's closing price, Flutter has fallen 21% over the past six months, while Entain has dropped 34%. 888 Holdings has outperformed, rising 13% since April, but a profit warning in September has seen the stock fallen 23% in the past month.

"We think the negative moves are mostly overdone," Exane said in a research report on Monday. "The recent warnings from Entain and 888 have raised concerns over further potential regulatory headwinds. We think the worst is probably over, and that Flutter has continued to gain share, especially in online sports betting. Concerns over the potential impact of a single-customer view across operators' brands also look overdone for the more prudent operators."

The bank said that Italy remains an attractive market for the largest omnichannel operators, with Flutter set to benefit. Exane rates Flutter as 'outperform', along with Entain which it said "offers value after recent share price woes", but remains 'neutral' on 888.