Broker tips: Greggs, Inchcape, Unilever

Shore Capital has maintained a 'hold' rating on Greggs despite a strong start to the year from the bakery chain, saying that the shares look "up with events for now".

The company delivered "yet another strong trading update" on Monday, according to Shore Capital, reporting a 7.4% increase in like-for-like sales in the first 19 weeks of 2024 – though momentum did ease slightly in the latter nine weeks with LFL sales rising 6.6%.

However, the stock trades at a price-to-earnings ratio of 21x on 2024 estimates, which Shore Capital said was "quite fulsome", especially when compared with the wider FTSE 100 and UK consumer-focused competitors. It said the valuation was "up with events for now".

"Substantial growth is planned, as evidenced by the major aforementioned investment programme, which should help to compress those equity valuation metrics in time; an FY26 PER of c17.2x, which is still attractive, is forecast," Shore Capital said. "However, in the here and now, we not changing our neutral rating on Greggs stocks, noting quite sustained sideways movement and recent relative underperformance as UK stocks have edged off their undeserved lows."

Citi opened a 'positive catalyst watch' on shares of Inchcape on Tuesday, as it said the car dealership "has a unique consolidation opportunity within the automotive distribution market".

"In 2023, Inchcape secured 15 new contracts and 3 M&A transactions, which supports this view," the bank said.

In Citi's 22 March report, it argued that in 2023 volumes were subdued in a number of key markets, including Chile, Colombia, Singapore, and to a lesser extent Belgium and Greece.

"This suggests scope for a rebound over the next couple of years," Citi said. "Today, we show that in key markets, including Chile and Singapore, volume trends turned positive in April, while FX continues to improve."

The bank, which has a 'buy' rating on the stock, also noted that its FY25 adjusted pre-tax profit estimates of £610.0m remained around 7% above consensus.

Barclays has lifted its target price for Unilever following the consumer-goods group's well-received first-quarter results last month, saying the current quarter could beat expectations.

The bank has raised its target for the shares from 5,000p to 5,200p and maintained an 'overweight' position on the stock.

"Unilever remains the most compelling turnaround in European staples. It has delivered two consecutive strong volume quarters and we think Q2 could now see a sizeable margin beat," Barclays said.

The bank has lifted its revenue, margin and earnings-per-share estimates following Unilever's trading update on 25 April, in which it unveiled underlying sales growth of 4.4% in the first quarter, with all five business divisions contributing to growth.

The company kept its full-year outlook unchanged, forecasting a 3-5% improvement in underlying sales and "modest improvement" in underlying operating margin.

"Unilever is becoming a higher-growth, higher-margin business," Barclays said.