Broker tips: Ashtead, Bunzl

Analysts at JP Morgan slightly raised their revenue and underlying earnings estimates for equipment rental company Ashtead on Tuesday ahead of the group's first-quarter results in early September.

JP Morgan said it expects a continuation of the trends reported within Ashtead's fourth-quarter results, meaning its first-quarter numbers will likely beat standing consensus.

JPM now forecasts first-quarter sales of £1.17m, an 8% reported decline year-on-year, and adjusted EBITDA of £539.0m at a 45.9% margin as it anticipates management will take only "limited cost actions" in order to protect long-term prospects.

"The group is clearly trading through this downturn in a very different way to 2008/09 and much better than was feared, increasing confidence that the business model has actually changed and that the equity story is sustainably stronger," said JPM.

While the analysts said they recognise the uncertainties in the outlook, they still we expect the company-specific drivers of share gains, diversification and much-improved cash generation to provide enough support to the "relatively inexpensive" stock.

Analysts at RBC Capital Markets hiked their target price on distribution and services group Bunzl from 1,750.0p to 2,000.0p on Tuesday.

RBC said Bunzl's stock had "performed well" and proved far more resilient than the market had presumed, with first-half results coming in slightly ahead of forecasts - but largely consistent with the group's June update.

However, although Bunzl's outlook pointed to the strength of its business model, the Canadian broker believes the market will now focus on the tougher comparatives and the tough macro environment going into 2021.

"It is difficult to fault the group's track record of growth," said the analysts. "However, with structural pressures in grocery and retail, macroeconomic impacts from the government measures to contain Covid-19, potential competitive pressures emerging (Amazon B2B) and an increase in cost pressures and environmental awareness, this resilience has started to be tested."

With the valuation back at 20.0x 2021 price-to-earnings and growth seeming harder to come by going forward, RBC expects sentiment and momentum will "likely weaken", leading it to reiterate its 'underperform' rating on the stock.