Broker tips: Hiscox, Cineworld

Jefferies upgraded its stance on shares of Hiscox to ‘buy’ from ‘hold’ after the insurer announced late on Tuesday that it was launching an equity placing.

In the note, which was written before Hiscox confirmed that it had raised around £375m in the placing, Jefferies said it was not surprised to see the company undertake an accelerated bookbuild for 19.99% of the issued capital.

Though pricing was not finalised at the time of writing the note, it assumed that the 57.7m shares would be priced at 650p, raising £375m and said this was "reassuringly at the upper end of our expectations for $300m-$500m".

Jefferies also said this was a narrower discount than it had feared, perhaps reflecting the market's willingness to look to the long-term track record rather than focus on business interruption risk in UK small commercial lines.

The bank said that having declined more than 60% since their July 2019 high and with the equity issue undertaken, Hiscox shares now offer investors a secure balance sheet and very high growth at an attractive valuation.

Although it acknowledges that Hiscox faces "material" headwinds in the UK, Jefferies said the rapid de-rating of the shares reflects this and the opportunity to invest in US-based growth creates "compelling upside potential".

Jefferies cut its price target on the stock to 850p from 1,325p.

Analysts at Canaccord Genuity slashed their target price on theatre operator Cineworld from 270.0p to 140.0p on Wednesday but said the group could very well represent a "surprise recovery play".

The Canadian broker said Cineworld could "bounce back strongly" when cinemas potentially reopen towards the end June, partly thanks to Dark Knight director Christopher Nolan's highly anticipated film Tenet and Disney's delayed Mulan remake in July - not to mention an "excellent" film slate through 2021.

"Cinemas can cope with strict physical distancing protocols as they typically run on 20% to 22% occupancy," highlighted the analysts, which also reiterated their 'buy' recommendation for the group's shares.

Canaccord noted that in addition to securing covenant waivers, its scenario analysis suggested that Cineworld may only need to raise as little as $250m in extra liquidity in order to correct the ship.

However, the analysts questioned the fact that Cineworld remained publicly committed to its acquisition of Cineplex - despite the timing of the $3.2bn deal now looking "terrible" and "very mispriced".

"Cineplex's share price suggests the market does not believe that the deal will be completed; we think that the odds of completion are, at best, evens," said the analysts.