Broker tips: Boohoo, RDI REIT, Compass Group

Liberum lifted its price target on shares of Boohoo to 430p from 330p on Wednesday.

The broker, which kept its ‘buy’ rating on the fast-fashion retailer, said the company’s strategic capital raise "affords it a command and control approach unlike any other branded fashion player we know of".

"Its war chest of £500m will, if used, change the size and shape of the group, embedding its position as one of the fastest growers in global fashion."

Last week, Boohoo raised just under £200m in a placing to take advantage of M&A opportunities.

Liberum said this was "a decisive move by management and one that truly signals how the shape of retail will change post Covid-19".

It noted that historically, Boohoo has bought brands and not the stores when it has acquired distressed assets. It said this was unlikely to change, so any future transactions will likely involve taking ownership of the brand and maybe the digital assets, but certainly all the brand rights.

Liberum also said that while the coronavirus outbreak may have tempered recent demand, there is still growth in all of Boohoo’s brands and geographies, no inventory overhang and margins are well underpinned.

Analysts at Berenberg upgraded real estate investment trust RDI from 'hold' to 'buy' on Wednesday, stating the group's balance sheet would help it withstand headwinds stemming from the Covid-19 pandemic.

Berenberg said Covid-19 would, in its view, have a "significant impact" on RDI's operations but pointed out that the company's £85m-worth of cash on hand and the proceeds from its sale of the Bahnhof Altona Center in Hamburg were due imminently.

"We do not, therefore, anticipate a liquidity crunch," stated the analysts.

The German bank noted that while RDI was likely to delay non-core asset sales and rebase the dividend, it still expects portfolio loan-to-value ratio to fall within the 30-40% range that it targets by August 2021.

The analysts also said RDI's current valuation, a 68% discount to its last-reported net asset value, significantly undervalued the income-generating prospects of its "high quality portfolio".

Finally, despite shares being down 58% year-to-date, Berenberg said its price target remained unchanged at 80p.

Analysts at JP Morgan reiterated their 'underweight' recommendation for shares of Compass Group and slashed their target price, citing the speed and magnitude of the changes expected in the sector.

Relative to its peers, the catering services group's decision to proceed with a share placing was a "positive" and was expected to result in a stronger balance sheet, they said.

But the speed and size of changes in the industry, including increased work-from-home, longer shifts, increased labour, together with the increased costs associated with new social and health standards were a concern.

The broker cut its estimates for earnings per share by roughly 15%, although roughly eleven percentage points of that change was the result of the placing, leaving them about 14% below the analyst consensus for financial year 2021 and onwards.

JP Morgan also reduced its forecasts for the company's sales in financial years 2021 and 2022 by 11% and 7%, respectively, in comparison to the same period one year ago, with margins now seen 90 and 60 basis points narrower.

The target price meanwhile was cut by about 10% to 1,050.0p.