Broker tips: Cineworld, BP, Alphawave IP, Berkeley

Analysts at Berenberg raised their target price on theatre operator Cineworld from 70.0p to 85.0p on Thursday but warned that "too many unknowns" remained for it to make any changes to its 'hold' rating.

Berenberg stated that Cineworld shares were "almost certainly the wrong price", adding that it thinks numerous risks for the equity in the business still exist.

Although, the analysts admitted that with an equity value of just £1.2bn for a company that generated underlying earnings of over $1.0bn prior to the Covid-19 pandemic, if Cineworld can "muddle through", there could also be plenty of upside.

"We struggle to have much conviction about what is likely to happen next, and the limited guidance from Cineworld (particularly on its priorities for cash in the coming years) only makes it more difficult," said Berenberg.

The German bank also noted that it still believes that cinema has "an important role to play in the movie industry", and that it remains of the belief that predictions of its demise are "misplaced".

HSBC downgraded shares of oil giant BP to 'hold' from 'buy' on Thursday and cut the price target to 360.0p from 365.0p.

The bank said that while the market is probably too pessimistic about BP's ability to fund its transition to a lower-emissions world, this perception could take years to change.

"While we think pessimism over the long-term outlook is overdone, we don’t think this will ease for the foreseeable future," HSBC said.

"Meanwhile, with the catalyst for the start of buybacks now behind us and consensus already expecting a 65% recovery in 2021e cash flow, BP’s much-improved financials may not be able to drive outperformance from here."

HSBC said the key issue for BP is how to sustain group free cash flow when upstream volumes are set to fall 40% through 2030. The bank said there are three key reasons why this looks achievable: upstream cash flow per barrel should improve, offsetting some of the volume decline; upstream capex should fall substantially, in line with the shrinking production base; weaker upstream free cash flow should be offset by growth in the customer/convenience segment.

JP Morgan initiated coverage of Alphawave IP with an 'overweight' rating based on expectations that earnings will double each year over three years.

Alphawave floated on the stock market in May and in an update on 14 June said it had a record first half with bookings of more than $190.0m.

JP Morgan said Alphawave had strong growth and profitability and returns higher than the sector average, driven by its early stage and very strong growth in its end markets. Earnings before interest, tax, depreciation and amortisation are set to increase at a compound annual growth rate of 105% between 2020 and 2023, the bank said.

"Alphawave IP's return on invested capital is very substantially higher than semiconductor peers hence the company deserves a higher multiple in our opinion," JP Morgan analyst Sandeep Deshpande said in a note to clients.

Deshpande set a target price for December 2022 of 450.0p compared with a 331.0p price when the note was published.

Alphawave has predicted the market for its existing products would grow to $1.5bn in 2025 from $500.0m in 2020 and the market for future products would be more than $50.0bn by 2024.

Analysts at Canaccord Genuity nudged up their target price on homebuilder Berkeley Group from 5,230.0p to 5,240.0p on Thursday, stating the group was "well positioned with confidence returning".

Canaccord said Berkeley had delivered "a sound set of full-year results", slightly better than it had expected and, as a result, tweaked its estimates to now expect underlying profit before tax of £520.0m and £540.0m for 2022 and 2023 respectively

The Canadian bank noted that Berkely remained "in investment mode" and was in production on most of its big, complex sites, and added that while the firm has "generally postponed" the opening of developments until travel and the wider economy opens up more, current trading was seen as being good, with interest and enquiry levels in London now ahead of pre-pandemic levels.

While Canaccord acknowledged that building material cost inflation was accelerating and longer lead times for some products were appearing, it added Berkeley "appears on top of managing its challenges well", with management reiterating its long-term profit guidance and the firm on track to deliver its targeted 50% increase in housing delivery by 2024-25 from 2018-19 levels.

"There remains some concern over the medium-term pricing and attractiveness of London housing, particularly flats, but management is confident that London will bounce back and industry supply looks woefully below target levels. Assuming pricing holds up relatively well, as we assume it will, the group looks set to deliver a significant step-up in units and profits beyond the next few financial years," said Canaccord, which also reiterated its 'buy' rating on the stock.