Broker tips: Ferrexpo, Ocado, Watches of Switzerland

Credit Suisse upgraded Ferrexpo to 'outperform' from 'neutral' on Monday but cut its price target on the stock to 250.0p from 260.0p.

The bank said it continues to believe Ferrexpo shares present an attractive return profile, supported by strong dividend yields for investors who are willing to invest in a Ukrainian iron ore pellet producer that presents a material cost-effective portion of global seaborne pellet supply.

However, CS said its 2022 underlying earnings forecast for Ferrexpo had fallen 26% due to the recent Ukrainian rail disruption and it rolls its target price basis to 2023, hence the small reduction.

"With geographic concentration in Ukraine there is existential risk for Ferrexpo’s operations, however to date core operations have been undisrupted and the company has been adept in flexing production with demand and its capability to exports its pellets," CS said.

CS added that in its "optimistic scenario" on spot pricing, not its base case, if the company can return to three of four pellets lines in 2023, its shares could present 240% upside with an additional 30% dividend yield.

Analysts at Berenberg lowered their target price on online grocer Ocado from 1,415.0p to 1,290.0p on Monday but noted that the group's solutions division remained "on track".

Berenberg said Ocado's earnings and sentiment were being affected by headwinds facing its retail business, although it pointed out that the division was not the long-term driver of the group's valuation.

The German bank stated Ocado Solutions, the group's e-commerce technology unit, remained on track, was "well positioned" to navigate inflationary pressures, and added that its recent capital raise had eliminated funding concerns.

"We believe Ocado's ecosystem of grocery e-commerce solutions is best in class, and we expect more deals from both existing and new partners. We lower our price target to 1,290.0p (from 1,415.0p) to reflect the capital raise and lower value attributed to Ocado Retail," said the analysts, who reiterated their 'buy' rating on the stock.

"Excluding Ocado's 50% stake in Ocado Retail, which we value at £753.0m (91.0p per share), Ocado Solutions trades on c20x FY 2025E EV/EBITDA; however, these estimates incorporate no future deals and attribute no value to Ocado's other ventures (ie Oxbotica, non-food retail optionality, and vertical farming, among others)."

Shore Capital initiated coverage of Watches of Switzerland on Monday with a 'buy' rating and 1,200.0p fair value.

"Of our UK retail coverage, we would argue that WOS offers one of the highest levels of protection from the decline in consumer sentiment," the broker said.

"Investors have the prospect of high returns given the group’s relationships with luxury watch brands and the retail consolidation via its geographical expansion, with international now 35% of revenues."

ShoreCap said that in a highly fragmented sector, WOS's almost 100 years of experience had translated into strong growth as a listed company. It also noted that over the past three years, the company has tripled underlying earnings and doubled operating margins, a "testament to the strong impact of the group's CEO".

"We believe these credentials position the company to be the 'partner of choice' for watchmakers, which should fuel growth over the coming years," it said.