Broker tips: Devro, ASOS,William Hill
Analysts at Numis reiterated their ‘hold’ recommendation for shares of Devro on Tuesday, adding that the company’s valuation was 'fair' despite the shares' recent underperformance relative to its benchmark.
Hence, the broker reiterated its 220p target price for Devro, whose shares were then changing hands at a forward price-to-earnings multiple of 13.0, even though the shares had retreated by 13% year-to-date, underperforming the FTSE All Share by 8%, and were trading at a 30% discount to sector peer Viscofan.
The broker also noted how Devro’s divisions saw varying performances in 2017, with sales in the Asia Pacific region up 13%, which increased operating profit there by 3.6% to £28.4m - due to volume growth of 69% in China - while European sales rose 8.3% to £110m, albeit as operating profits in the region fell by 2.2% to £40.7m.
Furthermore, Numis highlighted the company's difficulties in the Americas, where sales fell 3.8% to £61.6m after a 25% drop in volumes reported in Latin America, leading to a fall of 2.9% in operating profits from the £23.7m.
Yes, results for fiscal year 2017 were in line with market expectations, on the back of "good" progress in both volume growth, up 6.5%, and EBITDA, up 9%, they conceded, but went on to note that it had also noted that the sausage casing manufacturer's operating profit had remained flat and adjusted EPS saw a 6% decrease.
On the other hand, Devro’s DPS was seen increasing 30% to 10.4p in 2018 and by a further 12% to 11.6p in the following year.
"We think Devro needs to demonstrate its ability to deliver operating profit growth following its recent investments in the US and China. Both of which are performing below the originally planned profitability. As such we maintain our Hold rating and 220p TP."
ASOS was sitting pretty on Tuesday as Jefferies and Shore Capital extolled its virtues.
Jefferies upgraded its stance on the online fashion retailer to 'buy' from 'hold' and hoisted the price target to 9,000p from 5,000p, highlighting its winning model.
"In a world of rising consumer expectations, we view ASOS' functionality rich digital platform as a long-term winning model," the bank said. It expects technology-led growth to drive a three-year sales compound annual growth rate of 26% and a core value per share of 8,000p. It sees the potential for ASOS to grow conversion rates to 3.8% by FY22E and grow above its mid-term guidance, leading it to ascribe another 1,000p to its price target.
Jefferies said the company's market-leading user experience is "a key competitive advantage", noting that its survey of 21 clothing retailers - both UK and international - ranked ASOS the highest for the functionality of its website.
Meanwhile, Shore Capital reiterated its 'buy' stance on the group, pointing to its continued and sensible investment in building infrastructure, product range and capabilities, as it chases its stated goal of being a global fashion destination for 20-somethings.
"In our view, ASOS remains well on track to deliver that ambition given that the UK now only represents 38% of group revenue. ASOS is developing its brand footprint and has simultaneously become a media creator and lifestyle content publishing platform, alongside the transactional website."
Shore upgraded its FY2018 earnings numbers by around 3% following the company's trading update on 25 January, to reflect the increased sales momentum during peak trading. Its forecasts now sit just above the ASOS-compiled consensus for revenues of £2.46bn and pre-tax profit of £101m for FY2018.
Analysts at Credit Suisse took a look at William Hill on Tuesday, reiterating both their 'outperform' rating and target price of 380p on the bookmaker's shares.
The Swiss broker's key takeaways on William Hill's recent trading were that, although operational leverage in its online business was apparent, with the firm's online EBITDA margin up 190bps year-on-year to 27.2%, the investment bank expected the bookie to exploit this fact further to help recover market share losses in the UK.
"We retain an outperform rating on William Hill. We believe the risk-reward is asymmetric with regard to the Supreme Court decision, with little priced in for the US opportunity at present (our TP includes 35pps). While the Triennial Review is a risk and an entirely plausible £2 outcome would hurt share price performance when announced, media reports of accelerated consolidation post the event could provide a floor on where the share price will ultimately settle," Tal Grant and his team of analysts at Credit Suisse said on Tuesday.