Broker tips: Asos, Whitbread, Hunting

Online fashion retailer Asos is likely to report a muted third quarter, Liberum said in a note on Tuesday.

The broker noted that Asos shares have more than tripled since its first-half results and £247m equity raise on 7 April, despite no company-specific update since then. The stock surged jumped 72% immediately following the interims and fundraise and have run a further 75% since then.

"We fear the market has read across too positively from the very strong updates from Boohoo and Zalando," Liberum said, arguing that this has created headroom for disappointment when Asos reports on trading for the four months to the end of June on 23 July.

Liberum said its look back at the latest updates, management commentaries and market data seems to support this.

The broker said there was reason to believe that Asos' top-line growth will be materially lower than Boohoo and Zalando - particularly the former. In addition, the company's gross margin will have seen pressure, particularly versus Boohoo’s first-quarter improvement of 60 basis points.

"ASOS' stock position is likely to remain elevated; ASOS’ warehousing throughput seems to have been much more materially impacted; and ASOS’ delivery proposition, at least in the early days of Covid-19, also seems to have been more impacted," said Liberum, which has a 'sell' rating and 2,450p price target on the stock.

"We are cognisant of the group's long-term opportunities, but we believe meaningful strategic change is required to more fully harness these."

Analysts at Berenberg slashed their target price on hotelier Whitbread from 3,000.0p to 2,400.0p on Tuesday as the group primed itself to reopen following Covid-19 lockdowns and associated travel restrictions.

Berenberg said Whitbread was in "a holding pattern" as it waited for the restart of its UK operations on 4 July, with its hotels in Germany having already reopened.

The German bank revised its numbers on the group taking into account the increased share count following the company's rights issue, its most recent results and also factored in IFRS 16 for the first time.

"Overall, our numbers come down given the higher-than-expected hit to profitability from the deterioration in revenue per available room," said the analysts, which also retained their 'hold' recommendation on the stock.

Berenberg said the valuation was "tough" as it expects Whitbread's foray into Germany to remain loss-making, which left the company's shares looking "expensive" on near-term multiples.

"Our DCF carries a fair value of 2,400p while, if we assume a 40% discount to our pre-Covid valuations for the real estate, invested capital in Germany and the Premier Inn brand, then this also implies a fair value of 2,400p," it said.

However, Berenberg also noted that Whitbread's main competitor Travelodge was "materially weakened", meaning the firm's recent improvements in its offering would be put on a slower trajectory, if not halted completely.

"This will give Whitbread the opportunity to reinforce its market-leading position."

Analysts at Credit Suisse kept their recommendation for shares of Hunting at 'hold', warning clients to expect only a "modest" recovery in activity in the US shale oil sector.

They estimated that in 2022 well oil completions would still be running at about half their level of 2019 and that the firm's International arm would see demand fall, with the depletion in its order pipeline not being made up.

Those two factors would more than offset the benefits from cost savings they said and meant that they were expecting earnings before interest, taxes, depreciation and amortisation of $6.0m over the last six months of 2020, which would be well below the $22.0m that consensus was anticipated.

Also unlike the consensus, they expected 2021 to be a 'down' year and not an 'up' one and the amount of working capital tied up was another "concern", with the group expected to consume $40.0m of cash even as its sales fall at a sequential rate of 20%.

"This is something we expect the market to follow closely given the risk that the company may again accept lower prices in order to offload inventory (as it did in 1H19)," they added.

Nonetheless, the oil field equipment and services outfit's recent first half trading update had revealed a stronger run rate heading into the backhalf of 2020.

As a result, the analysts bumped up their forecasts for underlying earnings over 2020-22 by 13% and their target price from 210.0p to 230.0p.

On their estimates, they also added that Hunting's shares were trading on approximately seven times's the company's EBITDA for 2022.