Broker tips: Aggreko, WPP, IAG

Aggreko was under the cosh on Wednesday as Morgan Stanley initiated coverage of the stock at ‘underweight’ with a 400.0p price target.

The bank said temporary power provider Aggreko has few catalysts for a re-rating beyond a positive oil price surprise and looks more likely to face further valuation pressure rather than a re-rating.

"The economics for temporary power are not broken and a de-risked receivables book is reassuring," MS said.

It noted that with 25% of the utilities division debtors written down to zero, a material overhang has been removed. However, many legacy Aggreko emerging market customers are seeing increased indebtedness and forecast to see muted GDP recoveries, MS said.

Using MS economists' forecasts, Aggreko's weighted geographic outlook pointed to a post-Covid "GDP-minus" recovery and also said that oil weakness, possible further impairments and a lengthy "green" transition need to be navigated.

Analysts at Berenberg raised their target price on advertising giant WPP from 565.0p to 635.0p on Wednesday, stating a "less precipitous" than expected decline amid the Covid-19 pandemic had demonstrated the group's resilience.

Berenberg said that like European rival Publicis, WPP had delivered "much better than expected" first-half results, with the second quarter being much less negatively affected by the pandemic than anticipated.

As a result, the German bank felt upgrading its estimates to put operating profit forecasts modestly ahead of pre-results consensus for 2020 was the right move.

However, the analysts highlighted that their changes to 2021 numbers were "less dramatic" given a less advantageous FX situation, as well as its assumption that a less steep decline will be matched by a less dramatic recovery.

"While clearly cheap, WPP trades, on both levered and unlevered metrics, at a premium to Publicis, and we see more upside in the French group," said Berenberg, which reiterated its 'hold' rating on the stock.

Analysts at Citi lowered their target price for shares of IAG ahead of the airline's rights issue, arguing that they do not expect it to ever return to its former glory.

They lowered their estimate for financial year 2020 net profits to -€31.2bn, under the assumption of a 59% drop in volumes.

Profits were expected to recover in 2021 to reach €70m thanks to 77% growth in volumes.

On the back of those changes, Citi cut its target price from 250.0p per share to 220.0p, but retained its 'neutral' recommendation on the stock.

"Essentially, no matter what the dilution, we never see the company returning back to previously peak profits nor its former glory."