Broker tips: AutoTrader, Pets At Home, National Grid, St James's Place, Quilter

Shore Capital has cut its recommendation for online car marketplace Auto Trader from 'hold' to 'sell', saying the stock's valuation is now stretched following a decent run in recent months.

Full-year results from the company on 30 May revealed a "good performance", according to Shore Capital analyst Roddy Davidson, with revenues, profits and KPIs for the 12 months to 31 March all showing a solid increase on the year before.

Davidson also highlighted Auto Trader's Deal Builder offering, which links up with car dealers with its digital platform, blending physical forecourt retailing with online channels to drive transactions. He also said the results "provided a reminder of the group's underlying attractions" and has raised its headline estimates in response, though upgrades were "not hugely material".

After a "generous" share price reaction of more than 12%, Davidson said the stock's valuation has been pushed into 'sell' territory when compared with Shore Capital's fair-value estimate of 676p.

Pets at Home rallied on Monday as Liberum upgraded its stance on the shares to 'buy' from 'hold' and lifted its price target on the stock to 360.0p from 290.0p.

"We have rightly been holders since Jan’23 but now see several reasons to move to buy," it said. "Yes, current trading is not great, but this should change as we move through the year."

Liberum said the new digital platform - "think Amazon, then think Prime and then overlay services (grooming + vets)" - is an immersive integrated platform that should lead to enhanced customer experience driving share of wallet, increase loyalty and frequency.

"The strength of the business and its cashflow profile more than underpins the current valuation and we move to buy as prospects for upgrades are now a lot clearer," it said.

Citi upgraded National Grid on Monday to 'buy' from 'neutral' and lifted its price target to 985.0p from 920.0p as it cited an attractive risk/reward.

"We see an attractive set up with: 1) a constructive political and regulatory outlook; 2) materially improved balance sheet with overhang removed; 3) at an attractive valuation for underlying assets that’s meeting its regulatory and financial targets, albeit scope to improve," the bank said.

It noted that National Grid shares are currently trading at a 10% discount to its long-term EV RAB premium of 30%, with a sustainable and growing dividend offering circa 5.5% yield.

"With this combination of factors, as well as potential macro tailwind from rate cuts later in the year and into 2025 from the BoE, we see risk-reward tilted to the upside," Citi said.

JPMorgan Cazenove upgraded St James's Place and Quilter to 'overweight' from 'neutral' on Monday as it took a look at UK wealth managers.

"After a very challenging period for UK wealth managers, we believe that the combination of improving flows, high earnings per share growth, and fading regulatory headwinds will lead to improving sentiment and positive share price performance," JPM said.

The bank lifted its price target for Quilter to 135.0p from 102.0p as it estimated that the company's redress provision should be fairly limited and one-off in nature.

"Whilst it might lead to an initial negative reaction, it could also constitute a clearing event and shift the focus on fundamentals, with improving flow momentum (+40%/16% YoY growth in net flows in 1Q24 from the restricted/IFA channel), 14% 2023-26e EPS compound annual growth rate and discounted valuation at just 11x FY25e (25% discount to the average of European platforms)," it said.

JPM also upped its price target on St James's Place to 730.0p from 637.0p, citing an attractive valuation and reducing uncertainty.

"Whilst we believe that negative news is largely behind us, this has not been reflected in valuation, with St James’s Place trading at 7x FY25e," it said. "We expect that sentiment will improve given the resilience in gross flows, and we see upside to consensus net flow estimates."