Broker tips: Reckitt, Trainline

Analysts at Berenberg downgraded personal care group Reckitt on Friday from 'buy' to 'hold', saying it was now "difficult to identify a catalyst".

Reckitt announced its third-quarter sales on Wednesday, with group like-for-like sales growth of 3.4%, which was a touch below visible alpha consensus forecasts of 3.7%.

Berenberg said the miss was driven by Reckitt's nutrition division, where like-for-like sales declined by 11.9%, which more than offset stronger-than-expected like-for-like sales growth in the hygiene division, which grew by 8.1%.

The German bank said that since it reinstated coverage on Reckitt with a 'buy' rating in 2019, the stock was down by 6%, a "disappointing performance" despite the "impressive turnaround" in the company's performance in the last three years.

"Our investment thesis was based on an improvement in operating performance underpinning a stock re-rating, and this has not materialised," said Berenberg, which also lowered its target price on the stock from 7,170.0p to 6,400.0p.

Looking ahead, the analysts said a catalyst was "less clear" as LFL sales growth could remain in the 3-5% range in 2024, as pricing moderates and group volume growth remains negative.

"For 2023, we forecast LFL sales growth of 4.4% (previously 5.0%) and an adjusted EBIT margin of 23.4% (unchanged). Our 2023 EPS forecast is broadly unchanged; however, for 2024E our EPS is 1% lower as we reflect some of the potential headwinds."

Trainline surged on Friday as JPMorgan Cazenove lifted the shares to ‘overweight’ from ‘neutral’ and upped the price target to 300.0p from 295.0p, pointing in part to an attractive valuation.

JPM noted that Trainline shares have de-rated relative to classifieds peers, likely driven by investor concerns on the complexity around changes in UK rail regulation, which overshadows strong passenger momentum.

"In this note, we assess potential outcomes from the UK rail reform and conclude limited financial impact, even on (we believe) highly cautious scenarios, with a £8m EBITDA loss potential overall (circa 6% of group adjusted EBITDA FY26E)," it said.

"Meanwhile, we flag upside risk from 1) rapidly rising online share in the UK with Trainline the key beneficiary, and 2) increasing carrier fragmentation in Europe driving online ticket sales momentum."

JPM said its 2025/26 EBITDA estimates are 6%/8% ahead of Bloomberg consensus on high visibility, low macro exposure, and an attractive valuation.

Analysts at Canaccord Genuity reiterated their 'buy' rating on the online ticket retailer ahead of its interim results on 2 November.

Canaccord expects Trainline to deliver a strong update, with potential for upgrades to full-year consensus. It noted that Trainline already reported in a first-half trading update that group net ticket sales had grown 23% to £2.65bn and group revenues were up 19% to £197m despite ongoing train strikes. Growth reflected channel shift, new product development and a recovery in industry passenger volume growth.

The Canadian bank said that while no underlying earnings guidance was given, with growth being driven by UK consumers and software-as-a-service Trainline Solutions, this should be "positive" for EBITDA given "significantly higher margins".

Canaccord, which also reiterated its 371.0p target price on the stock, forecasts interim revenue growth of 19% to £197.0m and underlying earnings growth of 24% to £56.0m, with adjusted pre-tax profits rising 32% to £17.9m.