Broker tips: Mears, Rightmove, William Hill

Analysts at Liberum slightly dropped their target price on housing and social care provider Mears Group on Tuesday from 150.0p to 130.0p as the company's first-half results were largely in line with expectations.

Liberum said Mears' interim results were in line with expectations, with a 7% decline in revenues, leading it to make no changes to its earnings estimates and expectations for fully-diluted earnings per share of 0.4p for 2020.

Average daily net debt increased from £114.0m to £121.0m over the half, with the analysts also leaving their full-year average daily net debt and spot net debt estimates unchanged at £99.0m and £41.0m, respectively.

While Liberum said Mears had "adequate liquidity", it did note that the company may need to request a covenant waiver in December but added that it took "some reassurance" that there would likely be "a high level of government support" given that the company provides essential services.

Liberum's target price reduction was a result of its sum of the parts assessment and the group's "not compelling" price-to-earnings ratio of 5.3x.

Property website Rightmove was under the cosh on Tuesday as Berenberg reiterated its ‘sell’ rating on the shares, arguing that the risk/reward is unattractive and that investors should "sell into strength".

The bank, which lifted its price target to 400.0p from 385.0p, said it was "very optimistic to assume everything will be fine from here".

It pointed out that after a steep rebound, Rightmove trades at a price-to-earnings of 32x on consensus 2021 earnings per share, earnings which consensus expects to be broadly stable compared to 2019.

"We, however, believe there are material risks to the financial health of estate agents when: a) furlough schemes end, and b) the stamp duty holiday ends at the end of March 2021," it said. "These risks add to an industry already struggling pre-Covid-19 (with numerous branch closures), and will add further pressure on either Rightmove’s pricing potential and/or agency customer numbers."

Berenberg said near-term discounts are papering over the cracks and that both cyclical and structural headwinds will resurface sooner rather than later.

"With substantial uncertainty ahead, and with now clear evidence of the cyclicality of Rightmove’s business, we believe a materially lower multiple is warranted," it said.

William Hill shares surged on Tuesday on the back of an upbeat note from Jefferies, which lifted its price target on the buy-rated stock to 330p from 305p and said US value is not priced in.

Jefferies said the company boasts the leading US sports betting market share, yet zero value is being priced in.

It noted that after launching in Nevada in 2012, William Hill has a 29% share of real money sports betting in the US.

"As more US states legalise more quickly than we expected, the prize is substantial," Jefferies said, adding that the US market could be worth some $19bn in net revenue by end 2023, equivalent to around $5bn EBITDA at maturity.

"US competitive positioning continues to strengthen with: 1) An enlarged retail footprint due to the Caesar's deal; and, 2) Launch with CBS Sports that will boost 'William Hill' brand recognition," it said.

Jefferies also highlighted other attractions such as ample liquidity, recent strong trading and the prospective positive catalyst of a UK regulatory review.