Broker tips: DS Smith, Smurfit Kappa, Next, CRH

Jefferies upgraded its ratings for DS Smith and Smurfit Kappa shares to 'buy' as the broker predicted positive trading for packaging companies due to eCommerce and environmental pressures.

European containerboard and box companies have healthy order books and low inventory levels going into 2021, Jefferies said.

Tighter global inventory will support pricing in the first half of 2021 and new supply will be absorbed by underlying demand, modest industrial recovery in the second half and more exports to China, Jefferies said. As a result, a bear case scenario for prices is unlikely, it added.

Jefferies increased its ratings on DS Smith and Smurfit Kappa from 'hold' with a £4.40 price target for DS Smith shares and a £39.50/€44 target for Smurfit Kappa.

Ecommerce has been "supercharged" by Covid-19 as consumers in lockdown switched spending from travel and leisure to ordering more goods delivered in boxes to their homes, Jefferies analyst Cole Hathorn said. Business customers may also pay more for customised, more attractive packaging than brown boxes to present to consumers, he added.

Analysts at Liberum upgraded clothing retailer Next from 'hold' to 'buy' and reiterated its 8,300.0p target price on the stock following some "very resilient" Christmas trading.

As a result of Next's holiday trading beating expectations, Liberum reinstated its forecasts and added estimates for a full-year 2022 pre-tax profit of £653.0m, an 88% year-on-year improvement.

Liberum did note that its expectations were 3% below the company's central scenario guidance of £670.0m as it assumes store closures through to the end of April and, while the group was now predominantly an online business, with more than 60% of sales being sourced over the internet, stores were still "key to its success".

"We remain positive about further online growth as Next attracts new brands and develops the Platform Plus, Total Platform and licensing models," said the analysts.

"Retail profitability will be supported by the ongoing rent renegotiations and potential rates reform, while the finance income is underpinned by a quality debtors book."

Societe Generale upgraded its rating on shares of CRH on Thursday to ‘buy’ from ‘hold’ as it said the building materials group is set to benefit from a Democratic majority in the US Senate.

The bank said it was lifting its long-term EBIT margin forecast from 11.1% to 12.2%, "reflecting the upside potential offered by a large US infrastructure plan".

Including an estimated 12-month dividend per share of 68.5p, projected 12-month total shareholder return is 26.6%, SocGen said, "which warrants an upgrade to buy".