Broker tips: Howden Joinery, James Fisher, Antofagasta, Rightmove, Smith & Nephew

Berenberg lowered its target price on commercial furniture group Howden Joinery from 870.0p to 835.0p on Friday after the group noted that its outturn was more likely to be at the lower end of consensus estimates.

Berenberg noted that overall, management had maintained its expectations for the 2023 trading year. However, given recent macro weakness, it believes that pre-tax profits will be at the lower end of its £330.0m-365.0m target range, with the mid-point at £347.0m.

"As such, we update our model and reduce our numbers by 5-7% across the forecast period. More broadly, our view is that FY23 will be tough for all participants in the UK repair, maintenance and improvement and new-build markets, but that Howden is very well positioned on a multiyear view, can take share and can grow its business meaningfully from current levels," said Berenberg.

The German bank noted that there were no expectations for a strong volume recovery in these end markets in the 2024 trading year given the prevailing headwinds from higher interest rates, affordability, and consumer confidence. As a result, it believes that the UK kitchen market could be down a further 5% next year, with Howden volumes remaining broadly flat year-on-year.

In Berenberg's updated numbers, it sees UK like-for-like revenues for FY24 being 1.5% higher, driven entirely by price, and margins broadly flat year-on-year, as efficiency savings continue to offset investment in new depots, distribution, and growth.

Analysts at Canaccord Genuity lowered their target price on oilfield service firm James Fisher & Sons from 550.0p to 425.0p on Friday as they questioned what makes the stock expensive.

Canaccord Genuity said James Fisher "has a long traded history as a public company", noting that for much of the period between 2004 and 2019, it enjoyed a premium multiple, typically trading at around 20x two-year forward earnings.

However, since early 2020 its rating has fallen, troughing at just over 5x in the dog days of summer 2022. It has since recovered above 10x, in line with a broader market recovery.

The Canadian bank updated its numbers to reflect the new divisional reporting structure and current consensus, but for the analysts the key question was what would have to be true to make the stock expensive.

"We believe it is one or both of the company being unable to regain financial stability, or earnings being at risk. Neither looks likely, in our view, largely as Fisher is exposed to cyclical businesses where the trough is now behind us," said Canaccord, which reiterated its 'buy' rating on the stock.

It also noted that a Fisher update was "somewhat overdue" and its figures were "a substantial cut", taking around £12.0m-15.0m off forecast 2023-24 underlying earnings, with larger impacts on earnings and on dividends.

RBC Capital Markets upgraded Antofagasta on Friday to 'sector perform' from 'underperform' and lifted its price target on the stock to 1,300.0p from 1,200.0p, as it said the risk/reward was improving after recent share price underperformance.

The Canadian bank noted that Antofagasta has de-rated in recent months and is now back close to its five-year average ratio to the Stoxx 600.

"A confluence of events, including risks to 2024 copper balances, resilient demand from China and now the Fed pausing leave us with a more neutral view on ANTO and as such we upgrade our rating," it said.

RBC said that following Antofagasta’s underperformance versus the sector, it now sees a better risk/reward for the shares.

"Although copper demand and economic indicators in the West continues to weaken, China's demand is remaining more resilient and indicators like premia and inventories could provide some near-term price support," it said.

RBC added that one of the reasons why it values Antofagasta at a premium is due to its position as a pure-play copper company, with strong management "in a (usually) relatively safe jurisdiction".

Citigroup has reiterated its 'sell' rating and 445.0p target price for online property platform Rightmove, highlighting rising competition from US group CoStar.

"Facing well capitalised CoStar in commercial and residential changes the predictability of Rightmove's earnings," Citi said in a research report on Friday.

The bank acknowledged that Rightmove has a "clear lead" in the residential sector, boasting three times the online traffic as the second-biggest marketplace in the UK, which has helped it come through previous competition challenges "unscathed".

However, "the firepower and ambition of CoStar means it could be trickier this time," Citi said.

Meanwhile, Citi said the commercial industry landscape was more complex, with Rightmove lagging others in data services offerings, but noted that there was potential for the group to improve revenues in the area but it will come at a higher cost.

JPMorgan Cazenove upgraded Smith & Nephew to 'overweight' from 'neutral' on Friday as it argued the recent de-rating was overdone.

"Shares have de-rated to 10-year lows in recent weeks on: 1) concern on a margin guidance downgrade post-H1 soft margins and 2) GLP-1 impact on procedures," the bank said.

It added that stronger-than-expected third-quarter revenues are likely to build confidence that top-line growth is sustainable.

"Operating leverage from these revenues combined with phasing/cost savings and commentary on the margin outlook means the feared near-term downgrades won’t materialise," JPM said.

"We think the GLP1 impact on ortho has been overplayed. The downgrade cycle that started in 2018 looks finally to be coming to an end - or at least is in sight."

JPM said the de-rating was "overdone" and it believes investors are likely to revisit the investment case. The target price was cut to 1,248.0p from 1,405.0p.