Broker tips: Crest Nicholson, Britvic, ConvaTec

Shares in Crest Nicholson were performing strongly on Tuesday as the housebuilder attempts to recover after a profit warning last week which tanked the stock price, with broker Berenberg lifting sentiment after reiterating its 'buy' rating.

The broker pointed out that the stock is trading at just 12x trough EPS, and 0.5x tangible net asset value.

"This leaves the group, even on significantly downgraded forecasts, as the most lowly rated housebuilder in the peer group, and we think this asset-backed valuation is very compelling," said analyst Harry Goad.

"It is on account of this valuation support that we keep our 'buy' rating."

In an unscheduled trading update on 21 August, Crest Nicholson said it had seen a marked deterioration in sales rates over the past seven weeks, with 0.25 houses sold per site per week, down from 0.5 a year earlier.

Profit before tax is now expected to come in at £50m for the financial year ending 31 October, a 30% cut on previous guidance and down from £138m the previous year.

The downgrade to forecasts means Berenberg has cut its target price from 310p to 250p.

"While we acknowledge the company’s comment that higher mortgage rates have affected customer demand, we are nevertheless surprised by the extent of the change in outlook and guidance, which stands out as more marked than peers," Goad said.

"With hindsight it appears the management assumptions for what it could achieve in its H2 were far too optimistic."

Barclay has upgraded its stance on the shares of Britvic and lifted its target price by 10%, saying the "stars are aligning" for the soft drinks maker.

The bank has raised its rating from 'equal weight' to 'overweight', and hiked its target price from 1,000p to 1,100p.

Britvic said back in July that trading in ts third quarter had been "strong", with revenues up 9.9%, helped by positive price/mix and volume growth. This raised year-to-date revenue growth to 8.6%.

The company also announced two acquisitions: Jimmy's Iced Coffee in the UK, and Extra Power in Brazil.

"In the wake of COVID and inflation disruption to the implementation of Britvic's new growth strategy, we now see headwinds clearing and identify multiple top-line and margin drivers that can deliver accelerated growth," Barclays said in a research report on Tuesday.

"Our updated forecasts are 4%+ ahead of consensus from FY24E onwards."

Liberum Capital has identified ConvaTec, Drax and Hays as three "cheap" stocks that should be considered by value-oriented investors.

"It is well known that European stock market valuations are lower on average than in the US," said analysts Joachim Klement and Susana Cruz in a research report on Tuesday.

"Adjusted for differences in sector composition, the European stock market currently trades at a 23.5% discount to the US, while the UK market even trades at a 27.7% discount. Both are very large discounts compared to what we have seen even in the post-GFC [global financial crisis] era of US megacap dominance."

The analysts took a deep dive into 110 different subsectors to find out which European stocks trade at the biggest discount – on a price-to-earnings ratio basis – to their US peers.

While ConvaTec, Drax and Hays don't trade at the biggest discounts to US peers in their coverage, Liberum highlighted these three stocks with a 'buy' rating.

For ConvaTec, the medical products group focused on therapies for the management of chronic conditions, the stock trades at 19.8x forward earnings, a 23% discount to the average multiple of 25.7x for medical supplies peers on the S&P 500. Liberum gives the shares a target price of 276p, compared with Friday's closing price of 230.2p.

Power station business Drax trades at just 4.3x earnings, a 71% discount to S&P 500 electricity peers (14.8x). The price target for Drax is set at 940p (Friday's close: 559.6p).

Recruitment firm Hays trades at 11.2x earnings, a 38% discount to the business training and employment agency sector on the S&P 500 (18.1x). The price target for Hays is set at 125p (Friday's close: 105.3p).