Broker tips: Burberry, Persimmon, Synthomer

Jefferies upgraded Burberry to ‘hold’ from ‘underperform’ on Monday, lifting the price target to 1,400p from 1,250p given recent underperformance and its conviction that metrics will move sideways now rather than deteriorate.

The bank noted that Burberry is still losing market share but said that provided expectations remain low, there is limited downside from here at current prices.

Jefferies said it has long argued that the March YE was going to hurt Burberry disproportionately "given Covid-19 impact momentum".

"And so it did. That said, the lack of pricing discipline (part strategy, part necessary, part abnormal landscape) continues to hurt metrics with no obvious short-term remedy. Hence the post-release underperformance."

However, Jefferies said there is now more of a balance in terms of short-term small beat/miss likelihood.

"Whilst we continue to see a number of brand-specific challenges, Q1 was the most trying quarter and delivery should slowly improve hereon," it said.

Davy upped its stance on shares of housebuilder Persimmon to ‘neutral’ from ‘underperform’ on Monday following the company’s "impressive" response to the Covid-19 crisis.

It said Persimmon has driven the best operational rebound post-Covid of any builder in the sector.

"This had led an upgrade to our already reasonably bullish volume outlook, which we had for the sector generally, and we upgrade the stock," it said.

Davy said the company - whose interim results are due on Tuesday - impressed both it and markets generally by being the first UK builder back to 100% run rate of production post the March-May Covid lockdown and social distancing requirements.

The upshot of this performance means Davy has upgraded its volume forecasts on the company for 2020 by around 4%. It now expects approximately 13,100 units in the full year, down only 17.5% compared to 2019. Davy’s operating profit forecast has also increased by 4% to £759m, leaving it 5% ahead of current consensus numbers.

Davy said these upgrades, "while small and 2020-specific", are likely to be the only upward move it makes in the sector around summer announcements, which have generally disappointed on both volume and margin.

Davy, which has a price target of 2,380p on Persimmon, said that with operations returning to normal, the focus will shift back to shareholder returns in the next six months.

Analysts at Berenberg raised their target price on chemicals group Synthomer from 330.0p to 370.p on Monday, stating the company's mix following its acquisition of Omnova in April was "surprisingly resilient".

Berenberg said Synthomer’s first-half results delivered "a smooth riposte to bears", who had previously argued that the company's cyclical business mix warranted a discount to the wider sector and that its equity story was "overly dependent" on mergers and acquisitions.

The German bank pointed out that adjusted pre-tax profits of £58.0m was a 10% beat versus consensus expectations, driven primarily by the group's legacy business in the construction-and-coatings-focused functional solutions segment.

"The underperformance of the shares relative to construction and coatings plays like Sika, AkzoNobel and Sherwin-Williams (up by circa 20% year-to-date versus down by 10% for Synthomer) is likely to be short-lived, especially as Q2 exit volumes in several areas are approaching normalised levels," said the analysts, who also remained buyers of the stock.

"Synthomer, in our view, combines the virtues of an undemanding valuation, high free cash flow yield, above-sector returns and additional upside from M&A."